Explain the npv criterion, Financial Management

Consider that you are deciding whether to undertake one of two projects. Project A involves buying expensive machinery which will produce a better product at a lower cost. The machines for Project A cost $1000 and if purchased you anticipate that the project will produce cash in ows of $500 per year for the next 5 years. Project B0's machines are cheaper, costing $800, but this project will produce smaller cash in ows of $420 per year for the next 5 years. Assuming the interest rate to be 12% compounded annually, which project would you choose to undertake if you apply

(i) the NPV criterion,

(ii) the IRR criterion given that the IRR for Project A is 41% and that for Project B is 44%.

Posted Date: 12/4/2013 12:46:23 AM | Location : United States

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