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Question : Consider the following two projects:
Project

Consider the following two projects:

Project

Year 0

Cash Flow

Year 1

Cash Flow

Year 2

Cash Flow

Year 3

Cash Flow

Year 4

Cash Flow

Discount Rate

A

-100

40

50

60

N/A

.15

B

-73

30

30

30

30

.15

a) Assume that projects A and B are mutually exclusive. What is the correct investment decision and why? Show your calculations

b) Calculate the incremental cashflows between Projects A and B. Show all calculations.

c) What is the incremental IRR? Which project do you choose based on your answer? Show all calculations

Project |
Year 0 Cash Flow |
Year 1 Cash Flow |
Year 2 Cash Flow |
Year 3 Cash Flow |
Year 4 Cash Flow |
Discount Rate |

A |
-100 |
40 |
50 |
60 |
N/A |
.15 |

B |
-73 |
30 |
30 |
30 |
30 |
.15 |