Callaway Associates, Inc. is considering the following mutually exclusive projects. Callaway’s cost of capital is 12%.
Project A PROJECT B
0 ($25,000) ($80,000)
1 $44,000 $65,000
2 $34,000 $30,000
3 $14,000 $ 0
4 $14,000 $5,000
a. Calculate each project’s NPV and IRR.
b. Which project should be undertaken ? Why?
In the above pictures we have found the Npv and IRR of two projects. These are two Techniques used in capital budgeting for choosing a project.
B) We should choose project A as it has a higher Npv and IRR than project B.