Calculate net present value (NPV) and internal rate of return (IRR) of both the investments.

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
Section: Chapter Questions
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Mrs Alis is an intelligent business woman. She makes her investments after a very thoughtful process. In  January 2018 , her manager has shown her some projects with the following details

Option A

Investment into a towel business that initially cost $200,000 and then will generate cash inflow of $24000 per year for the next 10 years

Option B

Investment into a detergent business that initially cost $190,000 and then will generate cash inflow of $20,000 for each of next 12 years.

The rate of return associated with both the investments is 12%.

  1. Calculate net present value (NPV) and internal rate of return (IRR) of both the investments.
  2. Comment on which investment Mrs Alis should pick on the basis NPV and IRR.
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