A company is analyzing two mutually exclusive projects, S and L, whose cash flows are shown below:
Years0123 -
S-1,1001,00035050 -
L-1,10003001,500 -
The company's cost of capital is 12 percent, and it can get an unlimited amount of capital at that cost. What is the regular IRR (not MIRR) of the better project, i.e., the project which the company should choose if it wants to maximize its stock price?
Click on the arrows to vote for the correct answer
A. B. C. D. E.D
Because the two projects are mutually exclusive, the project with the higher positive NPV is the "better" project.
S-1,1001,00035050 -
NPV(S) = $107.46 -
IRR(S) = 20.46%
L-1,10003001,500 -
NPV(L) = $206.83 -
IRR(L) = 19.08%
Project L is the "better" project: its IRR = 19.08%.