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The initial investment and expected profits from two mutually exclusive capital investments being ...

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The initial investment and expected profits from two mutually exclusive capital investments being ...

The initial investment and expected profits from two mutually exclusive capital investments being considered by a firm are as follows:

	Investment A ($)	Investment B ($)
Initial investment	92,000	85,000
Year 1 profit	30,000	50,000
Year 2 profit	80,000	50,000

a) Calculate the IRR for each investment to the nearest 0.1%. On the basis of their IRRs, which investment is preferred?
b) Which investment should be chosen if the firm's cost of capital is 10%?
c) Which investment should be chosen if the firm's cost of capital is 7%?

Textbook

Business Mathematics in Canada

Edition: 11^th

Authors: Jerome, Worswick

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