Question: The following statements give quantitative considerations relevant for the ranking of projects A & B.
CRITERIA PROJECT A PROJECT B
Investment 400.00 300.00
Internal rate of return 18% 20%
Present value at 5% discount factor 542.70 421.20
NPV at 6% dicount factor 142.70 121.20
NPV at 12% discount factor 60.50 60.50
Project A required an investment of $ 400.00 and was expected to have cash inflow of $ 110.00 , $ 120.00 , $ 130.00 , $ 140.00 & $ 150.00 over its 5 year economic life. Project B involved an investment of $ 300.00 and was expected to have cash inflows of $ 100.00 each over its 5 year economic life.
Which of the two projects will you select if cost of capital is
(i) 10%
(ii) 20% and
(iii) 15% ?
Give reasons in support of your decision.