Callaway Associates, Inc. is considering the following mutually exclusive projects

Question:

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?

Answer:

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.

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