Computing the internal rate of return of investment

Reference no: EM1310213

1) 2 mutually exclusive investments cost= $10,000 each and contain following cash inflows. Firm’s cost of capital is 12%.

i) Compute the net present value of each investment?

ii) Compute the internal rate of return of each investment?

iii) Which investment(s) must the firm make?

iv) Would your answers be different to iii if funds received in Year 1 for investment A could be reinvested at 16%? Illustrate your work.

Investment

Cash inflow     A         B
Year 1        $12,407 —
Year 2            —        —
Year 3            —        —
Year 4            —     $19,390

Reference no: EM1310213

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