Two mutually exclusive investments cost $10,000 each and have the following cash inflows. The firm’s cost of capital is 12 percent.
What is the net present value of each investment?
What is the internal rate of return of each investment?
Which investment(s) should the firm make?
Would your answers be different to (c) if the funds received in year 1 for investment A could be reinvested at 12 percent? 16 percent? 20 percent?