14.2
Consider the following two projects:
| Year 0 | Year 1 | Year 2 | Year 3 | |
| A | -40 | 20 | -10 | 40 |
| B | -100 | 60 | 0 | 70 |
The opportunity cost of capital for both projects is 10%.
2. Assume that the IRR of project A is 16.6% and the IRR of
project B is 13.9%. If the two projects were mutually exclusive,
which would the IRR rule tell us to take? EXPLAIN. (1 pt)
IRR would tell us to take the one with the higher IRR,
project A in this case. The IRR rule says to take a project if it
has an IRR greater than the opportunity cost of capital (10% in
this case), and to maximize IRR when choosing between 2 projects.