Towson Enterprises has recognized two mutually exclusive (can’t do both) projects. The relevant cash flows and timing of those cash flows are shown in the following table. Suppose that the cash flows in years 1 through 4 all are received at the finish of the year.
|
Year
|
Project A
|
Project B
|
|
At Start
|
$ (50,000)
|
$ (50,000)
|
|
1
|
26,000
|
12,000
|
|
2
|
20,000
|
16,000
|
|
3
|
16,000
|
20,000
|
|
4
|
12,000
|
26,000
|
( a ) What is the approximate internal rate of return for every of the two projects? If you apply the internal rate of return decision rule, which project should Towson accept?
(b) If the needed rate of return is 9%, what is the net present value for every of the two projects? Which project would Towson select if it applies the net present value decision rule