An engineering company normally expects a rate of return of 12% on investments. Two projects are available but only one can be chosen. Project A requires an immediate investment of $7,100. In return, a revenue payment of $4,500 will be received in four years and a payment of $9,500 in six years. Project B requires an investment of $3,000 now and another $3,000 in three years. In return, revenue payments will be received in the amount of $1,600 per year for six years. Which project is preferable based on NPV and IRR? Show your calculations.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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An engineering company normally expects a rate of return of 12% on investments. Two projects are available but only one can be chosen. Project A requires an immediate investment of $7,100. In return, a revenue payment of $4,500 will be received in four years and a payment of $9,500 in six years. Project B requires an investment of $3,000 now and another $3,000 in three years. In return, revenue payments will be received in the amount of $1,600 per year for six years. Which project is preferable based on NPV and IRR? Show your calculations.

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