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Homework answers / question archive / You must choose between two mutually exclusive projects
You must choose between two mutually exclusive projects. You may choose only one project, not both. Or you may reject both. Let us consider the two projects C and D; both need a $10 million investment, each.
Project C generates $15 million in Year 1 and $10 million in Year 2.
Project D generates 0 in Year 1 and $30 million in Year 2.
You can verify that: Project C has NPV of $11.9 million at 10% discount rate and IRR of 100%.
Project D has NPV of $14.8 million and IRR of 73.2%.
a. What project do you take based on the IRR decision rule?why
b. What project do you take based on the NPV decision rule?why
c. Do you get the same decision under both rules? If not why? Which project do you ultimately decide to do?
