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Calculating Stocks and Capital Budgets

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Two mutually exclusive investment projects have the following forecasted cash flow:
Year A B
0 $-20,000 $-20,000
1 10,000 0
2 10,000 0
3 10,000 0
4 10,000 60,000
a) Compute the internal rate of return for each project.
b) Compute the net present value for each project if the firm has a 10 percent cost of capital.
c) Which project should be adopted? Why?

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Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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