Farrah Corporation is considering two projects (see below)

Accounting Feb 27, 2021

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?

Expert Solution

Based on above calculations, Project B should be selected as NPV is higher for Project B.

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