A firm has a capital budget of $100 which must be spent on 1 pf 2 projects, each requiring a present outlay of $100. Project A yields a return of $120 after 1 year, whereas Project B yields $201.14 after 5 years.
- The NPV of each project using 10% discount rate
- The IRR of each project
What are the project rankings on the basis of these two investment decision rules? Supposed that you are told that the firms reinvestment rate 12% which project should the firms choose?