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Net present value

NPV versus IRR. Here are the cash flows for two mutually exclusive projects:
Project C0 C1 C2 C3
A -$20,000 +$8,000 +$8,000 +$8,000
B -$20,000 0 0 +$25,000

a. At what interest rates would you prefer project A to B?

b. What is the IRR of each project?

Solution Preview

a. At what interest rates would you prefer poject A to B?
Let Payment = 8000
FV = -25000
PV = 0
Number of periods = 3
compute Rate = 4.11%
Then if Rate < 4.11%, the PV of ...

Solution Summary

Net present value and other investment criteria are emphasized.

$2.19