Question

1. A firm must choose between two mutually exclusive projects, A & B. Project A has an initial cost of $11000. Its projected net cash flows are $900, $2000, $3000, $4000, and $5000 at the end of years 1 through 5, respectively. Project B has an initial cost of $15000, and its projected net cash flows are $7000, $5000, $3000, $2000, and $1000 at the end of years 1 through 5, respectively. If the firm’s cost of capital is 6.00%:

		The NPV and the IRR criteria provide the same ranking of these two projects.
		The NPV criterion recommends Project A while the IRR criterion recommends Project B.
		The NPV criterion recommends Project B while the IRR criterion recommends Project A.
		The NPV and IRR criteria provide different rankings, but suggest that both projects should be taken.
		The NPV and IRR criteria provide the same ranking, but suggest that both projects should be taken.

Answer 1

Correct Answer ia opion B
Project A has HIgher NPV, but the project B has higher IRR
If we have two mutually project we have to choose one those project whose NPV is greater,
IRR is to be calculated in excel by formula
=IRR(values,[guess])

NPV = Pv of inflow - outflow
PV of inflow is calculated on excel by formula-
=PV(rate,nper,pmt,fv)

Project A

Year	Cashflow	Pv Of CF
0	-11000	-11000.00
1	900	849.06
2	2000	1779.99
3	3000	2518.86
4	4000	3168.37
5	5000	3736.29
	NPV	1052.57
	IRR	8.75%

Project- B

Year	Cashflow	Pv Of CF
0	-15000	-15000.00
1	7000	6603.77
2	5000	4449.98
3	3000	2518.86
4	2000	1584.19
5	1000	747.26
	NPV	904.06
	IRR	9.05%

I hope this clear your doubt.

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