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Homework answers / question archive / Farrah Corporation is considering two projects (see below)
Farrah Corporation is considering two projects (see below). For your analysis, assume these projects are mutually exclusive with a required rate of return of 12%.
Project 1 Project 2
Initial investment $185,000 $1,100,000
Cash inflow Year 1
$230,000 $1,450,000
Compute the following for each project:
· NPV (net present value)
· PI (profitability index)
· IRR (internal rate of return)
Which project should be selected? Why?
Based on above calculations, Project B should be selected as NPV is higher for Project B.
