NET PRESENT VALUE VERSUS INTERNAL RATE OF RETURN
A company is thinking about two different modifications to its current manufacturing process. The after-tax cash flows associated with the two investments follow:
|
Year
|
Project I
|
Project II
|
|
0
|
$(100,000)
|
$(100,000)
|
|
1
|
-
|
63,857
|
|
2
|
134,560
|
63,857
|
The company's cost of capital is 10 percent.
Required:
1. Compute the NPV and the IRR for each investment.
2. Explain why the project with the larger NPV is the correct choice for the company.