A company is evaluating two different projects, both of which cost $25 million and last 6 years. Both projects have positive NPVs when using a cost of capital of 18%, and using that cost of capital makes Project A’s Profitability Index 1.25 and Project B’s Profitability Index 1.30. Their NPVs are the same when using a cost of capital of 15%.
1. Which project has a higher IRR?
2. Which project has a higher NPV when the cost of capital used to find NPV is 13%?
3. If Project A had two IRRs, one at 12% and the other at 26%. Would Project A’s NPV be positive or negative if a cost of capital of 11% was used to find NPV?
4. What is the NPV for each project?