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Consider the following two projects. Project A requires an outlay of $100 now (t=0) and returns...

Consider the following two projects.

  • Project A requires an outlay of $100 now (t=0) and returns $120 in exactly 1 year (t=1). 

  • Project B requires also an outlay of $100 now (t=0) and returns $175 after 4 years (t=4), without having any other intermediate payments. 


The investor's annual discount rate is 10%.


The two projects are mutually exclusive, i.e. only one of the two can be selected. 


Which project should be selected based on the NPV rule? (3 points) 


Which project should be selected based on the IRR rule? (4 points)

Which project will you recommend and why? (3 points)

DO NOT USE EXCEL

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