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Consider two mutually exclusive investment projects, A and B. The…

January 13, 2024

Consider two mutually exclusive investment projects, A and B. The discount rate for both projects is 5%. Project A costs $250,000 at time 0, and then generates positive cash flows of $200,000 per year for two years (time 1 and time 2). Project B costs $250,000 at time 0, and then generates a single positive cash flow of $350,000 at time 1. In order, answer the following three questions. Based on the IRR rule, which project would you choose? Based on what you learned in class, if Project B cannot be replaced, which project would you choose? If Project B can be replaced, which project would you choose?

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