For the given cash flows below, assume the cash flow is the same in the next 2 years. Compute the NPV for each project, and compute the incremental IRR. Compare and explain why NPV always gives the correct decision.

Project     Initial Investment     Year 1 Cash Flow  

A             500,000                             125,000

B             500,000                 120,000

QUESTION: Why should investors who identify positive-NPV trades be skeptical about their findings if they don’t inside information or a competitive advantage? What return should the average investor expect to receive?