Compute the internal rate of return

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Reference no: EM13109505

Caledonia is seeing two investments with one-year lives. The further expensive of the two is the better as well as will produce more savings. Presume these projects are mutually exclusive and that the required rate of return is 10 percent. Given the subsequent after-tax net cash flows-
YEAR PROJECT A PROJECT B
0 -$195,000 -$1,200,000
1 240,000 1,650,000
a) Compute the net present value.
b) Compute the profitability index.
c) Compute the internal rate of return.
d) If there is no capital-rationing constraint which project must be selected? If there is a Capital-rationing constraint how the decision must be made?

Reference no: EM13109505

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