Two mutually exclusive investment projects have the following forecasted cash flows:
|
Year
|
A
|
B
|
|
0
|
-$20,000
|
-$20,000
|
|
1
|
+10,000
|
0
|
|
2
|
+10,000
|
0
|
|
3
|
+10,000
|
0
|
|
4
|
+10,000
|
+60,000
|
a. Compute the internal rate of return for each project.
b. Compute the net present value for each project if the firm has a 10 percent cost of capital.
c. Which project should be adopted? Why?