A firm is considering two projects A, and B with the given cash flows; the firm's cost of capital is 12%

Finance Dec 11, 2020

A firm is considering two projects A, and B with the given cash flows; the firm's cost of capital is 12%. The NPV and IRR of Project A are as given in the table:
t CFt(A) CFt(B) 0 ($20,000.00) ($25,000.00) 1 $8,000.00 $12,000.00 2 $8,000.00 $12,000.00 3 $8,000.00 $5,500.00 4 $5,000.00 $5,500.00 NPV $2,392.24 IRR 17.93%
If the projects are independent, which would be financially recommendable?
O Both, Project A and Project B ? Neither of the projects is recommendable • ProjectA O Project B

Expert Solution

As NPV for both projects is positive and IRR is higher than Cost of Capital. So, Both Project A and B would be financially recommendable.

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