NPV
Project A requires an initial outlay of £100,000, but will return £40,000 at the end of each of years 2, 3 and 4 whereas project B requires an initial outlay of £140,000 but will return £40,000 at the end of years 1, 2, 3 and 4.
a) Calculate the NPV of each project if the discount rate is 6% compounded annually. [1 0]
b) On the basis of your answer to part a), which project would you invest in? Why? [5]
c) Calculate the IRR for each of the two projects. [1 0] d) On the basis of the IRR which project would you prefer? Is it worth investing in either of the two projects? [5]
Bonus for good spreadsheet development [5]