Determine the preferred investment

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Assuming that investments A and B are equally risky and using the 4% discount rate, apply the present value technique to assess the acceptability of each investment and to determine the preferred investment. Explain your findings.

b. Recognizing that investment B is more risky than investment A, reassess the two alternatives, adding the 4% risk premium to the 4% discount rate for investment A and therefore applying a 8% discount rate to investment B. Compare your findings relative to acceptability and preference to those found for question a.

c. From your findings in questions a and b, indicate whether the IRR for investment A is above or below 4% and whether that for investment B is above or below 8%. Explain.

d. Use the present value technique to estimate the IRR on each investment. Compare your findings and contrast them with your response to question c.

Reference no: EM132969163

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