1. Principles of Finance (FIN 200)
Net Present Value and Other Investment Criteria
CH 9
ABDULLAH ALSHEHRI

2. Key Concepts and Skills
Be able to compute the net present value and understand why it is the best decision criterion
Be able to compute payback and discounted payback and understand their shortcomings
Understand accounting rates of return and their shortcomings
Be able to compute internal rates of return (standard and modified) and understand their strengths and weaknesses
Be able to compute the profitability index and understand its relation to net present value

3. Topics Net Present Value The Payback Rule The Discounted Payback
The Average Accounting Return
The Internal Rate of Return (IRR)
The Profitability Index
The Practice of Capital Budgeting

4. identifying the three key areas of concern to the financial manager.
What fixed assets should we buy? We called this the capital budgeting decision.
We frequently face broader issues like whether we should launch a new product or enter a new market. What services will we offer or what will we sell? In what markets will we compete? What new products will we introduce?
The answer to any of these questions will require that the firm commit its scarce and valuable capital to certain types of assets. As a result, all of these strategic issues fall under the general heading of capital budgeting.
How a firm chooses to finance its operations (the capital structure question.)
How a firm manages its short-term operating activities (the working capital question.)

5. Good Decision Criteria
We need to ask ourselves the following questions when evaluating capital budgeting decision rules:
Does the decision rule adjust for the time value of money?
Does the decision rule adjust for risk?
Does the decision rule provide information on whether we are creating value for the firm?

6. Net Present Value
The difference between the market value of a project and its cost:
How much value is created from undertaking an investment?
Steps in NPV analysis:
The first step is to estimate the expected future cash flows.
The second step is to estimate the required return for projects of this risk level.
The third step is to find the present value of the cash flows and subtract the initial investment.

7. NPV – Decision Rule Accept project if NPV is positive (NPV > 0)
Choose the highest NPV of projects that are mutually exclusive.
A positive NPV means that the project is expected to add value to the firm and will therefore increase the wealth of the owners.
Since our goal is to increase owner wealth, NPV is a direct measure of how well this project will meet our goal.

8. Project Example Information
You are reviewing a new project and have estimated the following cash flows:
Year 0: CF = -165,000
Year 1: CF = 63,120; NI = 13,620
Year 2: CF = 70,800; NI = 3,300
Year 3: CF = 91,080; NI = 29,100
Average Book Value = 72,000
Your required return for assets of this risk level is 12%.

9. Computing NPV for the Project
Using the formulas:
NPV = -165, ,120/(1.12) + 70,800/(1.12)2 + 91,080/(1.12)3 = 12,627.41
Using the calculator:
CF0 = -165,000; C01 = 63,120; F01 = 1; C02 = 70,800; F02 = 1; C03 = 91,080; F03 = 1; NPV; I = 12; CPT NPV = 12,627.41
Do we accept or reject the project?

10. Decision Criteria Test - NPV
Does the NPV rule account for the time value of money?
Does the NPV rule account for the risk of the cash flows?
Does the NPV rule provide an indication about the increase in value?
Should we consider the NPV rule for our primary decision rule?

11. Calculating NPVs with a Spreadsheet
Spreadsheets are an excellent way to compute NPVs, especially when you have to compute the cash flows as well.
Using the NPV function
The first component is the required return entered as a decimal
The second component is the range of cash flows beginning with year 1
Subtract the initial investment after computing the NPV

12. Payback Period
How long does it take the project to get the initial cost back in a nominal sense?
Computation
Estimate the cash flows
Subtract the future cash flows from the initial cost until the initial investment has been recovered
Payback Period = Number of Years to Recover initial investment.
Decision Rule – Accept if the payback period is less than some preset limit (management criteria)
Given two similar NPV projects with different paybacks, the project with the shorter payback is often the better project

13. Computing Payback for the Project
Assume we will accept the project if it pays back within two years.
Year 1: 165,000 – 63,120 = 101,880 still to recover
Year 2: 101,880 – 70,800 = 31,080 still to recover
Year 3: 31,080 – 91,080 = -60,000 project pays back approximately in year 2.04
Do we accept or reject the project?

14. Payback Period Method - Example
Year 0
Year 1
Year 2
Year 3
Project A
$ (10,000)
$ ,000
Project B
$ ,500
$ ,500
Project C
$ ,000
$ ,000
Project D
$ ,000
$ ,000

15. Payback Period Method - Example
Payback
(Discrete Years)
(Decimal Years)
Project A
1 year
Project B
2 years
1,3 years
Project C
3 years
2.1 years
Project D
It’s dependent on the company perspective

16. Decision Criteria Test - Payback
Does the payback rule account for the time value of money?
Does the payback rule account for the risk of the cash flows?
Does the payback rule provide an indication about the increase in value?
Should we consider the payback rule for our primary decision rule?

17. Advantages and Disadvantages of Payback
Ignores the time value of money
Requires an arbitrary cutoff point
Ignores cash flows beyond the cutoff date
Biased against long-term projects, such as research and development, and new.
A project accepted based on the payback criteria may not have a positive NPV
Advantages
Easy to understand
Adjusts for uncertainty of later cash flows
Biased toward short-term project.
Biased toward liquidity
An alternative: using Discounted Payback Period

18. Discounted Payback Period
Compute the present value of each cash flow and then determine how long it takes to pay back on a discounted basis
Compare to a specified required period
This procedure is similar to a payback period; however, the payback period only measure how long it take for the initial cash outflow to be paid back, ignoring the time value of money.
Decision Rule - Accept the project if it pays back on a discounted basis within the specified time

19. Computing Discounted Payback for the Project
Assume we will accept the project if it pays back on a discounted basis in 2 years.
Compute the PV for each cash flow and determine the payback period using discounted cash flows
Year 1: 165,000 – 63,120/1.121 = 108,643
Year 2: 108,643 – 70,800/1.122 = 52,202
Year 3: 52,202 – 91,080/1.123 = -12,627 project pays back in year 3
Do we accept or reject the project and why?

20. Decision Criteria Test – Discounted Payback
Does the discounted payback rule account for the time value of money?
Does the discounted payback rule account for the risk of the cash flows?
Does the discounted payback rule provide an indication about the increase in value?
Should we consider the discounted payback rule for our primary decision rule?

21. Advantages and Disadvantages of Discounted Payback
Includes time value of money
Easy to understand
Does not accept negative estimated NPV investments when all future cash flows are positive
Biased towards liquidity
Disadvantages
May reject positive NPV investments
Requires an arbitrary cutoff point
Ignores cash flows beyond the cutoff point
Biased against long-term projects, such as R&D and new products

22. Average Accounting Return
Average accounting return, also called accounting rate of return or ARR
There are many different definitions for average accounting return
The one used in the book is:
Average net income / average book value
Note that the average book value depends on how the asset is depreciated.
ARR is calculated by finding a capital investment's average operating profits before interest and taxes but after depreciation and amortization (also known as "EBIT") and dividing that number by the book value of the average amount invested.
Need to have a target cutoff rate
Decision Rule: Accept the project if the AAR is greater than a preset rate. (The higher the ARR, the better.)
The example in the book uses straight line depreciation to a zero salvage; that is why you can take the initial investment and divide by 2. If you use MACRS, you need to compute the BV in each period and take the average in the standard way.

23. Computing AAR for the Project
Assume we require an average accounting return of 25%
Average Net Income:
(13, , ,100) / 3 = 15,340
AAR = 15,340 / 72,000 = .213 = 21.3%
Do we accept or reject the project?
Students may ask where you came up with the 25%. Point out that this is one of the drawbacks of this rule. There is no good theory for determining what the return should be. We generally just use some rule of thumb.
This rule would indicate that we reject the project.

24. Decision Criteria Test - AAR
Does the AAR rule account for the time value of money?
Does the AAR rule account for the risk of the cash flows?
Does the AAR rule provide an indication about the increase in value?
Should we consider the AAR rule for our primary decision rule?

25. Advantages and Disadvantages of AAR
Easy to calculate
Needed information will usually be available
Disadvantages
Not a true rate of return; time value of money is ignored
Uses an arbitrary benchmark cutoff rate
Based on accounting net income and book values, not cash flows and market values

26. Internal Rate of Return
This is the most important alternative to NPV
It is often used in practice and is intuitively appealing
It is based entirely on the estimated cash flows and is independent of interest rates found elsewhere (the number is internal or intrinsic to the project and does not depend on anything except the cash flows of the project.
The IRR rule is very important. Management, and individuals in general, often have a much better feel for percentage returns, and the value that is created, than they do for dollar increases. A dollar increase doesn’t appear to provide as much information if we don’t know what the initial expenditure was. Whether or not the additional information is relevant is another issue.

27. IRR – Definition and Decision Rule
Definition: IRR is the return that makes the NPV = 0
Decision Rule:
Accept the project if the IRR is greater than the discount return (NPV > 0)
Reject the project if the IRR is lower than the discount return (NPV < 0)
If IRR is equal to the discount rate then the firm has choice either to accept or reject the project

28. IRR Ranking Criteria for mutually exclusive projects:
Minimum Acceptance Criteria for independent projects:
Accept if the IRR exceeds the required return
Ranking Criteria for mutually exclusive projects:
Select the alternative with the highest IRR, given the same discount rate.
Important: Reinvestment assumption
All future cash flows assumed reinvested at the IRR

29. Computing IRR for the Project
If you do not have a financial calculator, then this becomes a trial and error process
Calculator
Enter the cash flows as you did with NPV
Press IRR and then CPT
IRR = 16.13% > 12% required return
Do we accept or reject the project?

30. Example
Let’s assume that we would like to compute the NPV of our project, and the investment costs $100 and has a cash flow of $60 per year for two years, What is the project IRR?
based on what we now know, the only way to find the IRR in general is by trial and error, either by hand or by calculator

31. The NPV Profile for this Project

32. NPV Profile for the Project

33. Decision Criteria Test - IRR
Does the IRR rule account for the time value of money?
Does the IRR rule account for the risk of the cash flows?
Does the IRR rule provide an indication about the increase in value?
Should we consider the IRR rule for our primary decision criteria?

34. Calculating IRRs With A Spreadsheet
You start with the cash flows the same as you did for the NPV
You use the IRR function
You first enter your range of cash flows, beginning with the initial cash flow
You can enter a guess, but it is not necessary
The default format is a whole percent – you will normally want to increase the decimal places to at least two

35. Summary of Decisions for the Project
Net Present Value
Accept
Payback Period
Reject
Discounted Payback Period
Average Accounting Return
Internal Rate of Return

36. PROBLEMS WITH THE IRR
First and foremost what is the different between An Independent Project and Mutually Exclusive Project ?
An Independent Project is one whose acceptance or rejection is independent of the acceptance or rejection of other projects.
mutually exclusive investments for two projects such as A & B to be mutually exclusive mean you can accept A or you can accept B or you can reject both of them, but you cannot accept both of them. For example, A might be a decision to build an apartment house on a corner lot that you own, and B might be a decision to build a movie theater on the same lot, you can either choosing A or B but not both of them.
Now the problems with the IRR approach that affect both independent and mutually exclusive projects

37. PROBLEMS WITH THE IRR
Multiple IRRs: The possibility that more than one discount rate will make the NPV of an investment zero.
Occur when the cash flows switch signs.
Use NPV method instead.
Modified IRR
The Scale Problem
Occur when the cash flows from one project is much larger than the other
Use NPV instead
The Timing Problem

38. Multiple IRRs IRR and Nonconventional Cash Flows
When the cash flows change sign (Positive & Negative) more than once, there is more than one IRR
When you solve for IRR you are solving for the root of an equation, and when you cross the x-axis more than once, there will be more than one return that solves the equation
If you have more than one IRR, which one do you use to make your decision? NPV, it rule tells us to accept the project if the appropriate discount rate is between IRR range. The project should be rejected if the discount rate lies outside this range.

39. Multiple IRRs Which one should we use?
Remember: When you have CF change sign (Positive or Negative) more than once time , you can not use IRR because it’s incorrect using IRR more than once times. SO, You should use NPV instead or Modified IRR
Independent
There are two IRRs for this project:
-$200
$ $800
- $800
100% = IRR2
It is good to mention that the number of IRRs is equivalent to the number of sign changes in the cash flows.
0% = IRR1

40. Another Example – Nonconventional Cash Flows
Independent
Another Example – Nonconventional Cash Flows
Suppose an investment will cost $90,000 initially and will generate the following cash flows:
Year 1: 132,000
Year 2: 100,000
Year 3: -150,000
The required return is 15%.
Should we accept or reject the project?
Calculator: CF0 = -90,000; C01 = 132,000; F01 = 1; C02 = 100,000; F02 = 1; C03 = -150,000; F03 = 1; I = 15; CPT NPV =
if you just blindly use the calculator without recognizing the uneven cash flows, NPV would say to accept and IRR would say to reject.

41. NPV Profile IRR = 10.11% and 42.66% Independent
You should accept the project if the required return is between 10.11% and 42.66%

42. Summary of Decision Rules
The NPV is positive at a required return of 15%, so you should Accept
If you use the financial calculator, you would get an IRR of 10.11% which would tell you to Reject
You need to recognize that there are non-conventional cash flows and look at the NPV profile

43. Knowing a return is intuitively appealing
Advantages of IRR
Knowing a return is intuitively appealing
Closely related to NPV, often leading to identical decisions.
It is a simple way to communicate the value of a project to someone who doesn’t know all the estimation details
If the IRR is high enough, you may not need to estimate a required return, which is often a difficult task
Disadvantage of IRR
May result in multiple answers or not deal with nonconventional cash flows.
May lead to incorrect decisions in compari- sons of mutually exclusive investments.
You should point out, however, that if you get a very large IRR that you should go back and look at your cash flow estimates again. In competitive markets, extremely high IRRs should be rare. Also, since the IRR calculation assumes that you can reinvest future cash flows at the IRR, a high IRR may be unrealistic.

44. IRR and Mutually Exclusive Projects
If you choose one, you can’t choose the other
Example: You can choose to attend graduate school at either Harvard or Stanford, but not both
Intuitively, you would use the following decision rules:
NPV – choose the project with the higher NPV
IRR – choose the project with the higher IRR

45. Example With Mutually Exclusive Projects
Period
Project A
Project B
-500
-400 1
325 2
200
IRR
19.43%
22.17%
NPV
64.05
60.74
The required return for both projects is 10%.
Which project should you accept and why?

46. NPV Profiles IRR for A = 19.43% IRR for B = 22.17%
Crossover Point = 11.8%
Crossover rate is the discount rate that makes the NPVs of two projects equal.
If the required return is less than the crossover point of 11.8%, then you should choose A
If the required return is greater than the crossover point of 11.8%, then you should choose B

47. Calculating the Crossover Rate
Year
Investment A
Investment B
$-400
$-500 1
250
320 2
280
340
NPV(B-A): ( ), ,
NPV (B-A)= (-$100)+[70/(1+R)]+[60/(1+R)^2]= R=20%
In General, you can find the crossover rate by taking the difference in the cash flows and calculating the IRR using the difference. It doesn’t make any difference which one you subtract from which. To see this, find the IRR for (A - B); you’ll see it’s the same number.

48. NPV vs. IRR NPV and IRR will generally give us the same decision
Exceptions
Nonconventional cash flows – cash flow signs change more than once
Mutually exclusive projects
Initial investments are substantially different (issue of scale)
Timing of cash flows is substantially different

49. Conflicts Between NPV and IRR
NPV directly measures the increase in value to the firm
Whenever there is a conflict between NPV and another decision rule, you should always use NPV
IRR is unreliable in the following situations
Nonconventional cash flows
Mutually exclusive projects

50. Modified IRR THE MODIFIED INTERNAL RATE OF RETURN (MIRR)
As an alternative to NPV, we now introduce the modified IRR (MIRR) method, there are several different ways of calculating a modified IRR, or MIRR, but the basic idea which handles the multiple IRR problem by combining cash flows until only one change in sign remains.
Calculate the net present value of all cash outflows using the borrowing rate.
Calculate the net future value of all cash inflows using the investing rate.
Find the rate of return that equates these values.
Benefits: single answer and specific rates for borrowing and reinvestment

51. Method #1: The Discounting Approach
With the discounting approach, the idea is to discount all negative cash flows back to the present at the required return and add them to the initial cost. Then, calculate the IRR.
{In the discounting approach, we find the value of all cash outflows to time 0 at the discount rate, while any cash inflows remain at the time at which they occur. So, the discounting the cash outflows to time 0, we find}
E.g
r= 20%
Should we accept or reject this project?

52. All negative cash flows are discounted back to the present at the required return and added to the initial cost.
Step1: Calculate PV of outflows at 20%
Step2: add them back to initial cost
Year 0
-$- 60
Year 1
$155
Year 2
$-100
Step1: $100/(1.2)^2 = -$69.44
Step2: $ $100/(1.2) = -$129.44
(150/(1+MIRR))=0
MIRR using Method #1 is 19.75%
Calculator: CF0 = ; C01 = 100; F01 = 1; CPT IRR = 19.75%

53. Example Year 0 -$90,000 Year 1 $132,000 Year 2 $100,000 Year 3
-$150,000
Year 0: -$90,000 - $150,000/(1.153)
= -$188,627.43
Year 1: $132,000
Year 2: $100,000
Year 3: $0
0 = -$188, ( $132,000/(1+MIRR))+($100000/(1+MIRR))^2= 15.77%
MIRR using Method #1 is 15.77%
Calculator: CF0 = -188,627.43; C01 = 132,000; F01 = 1; C02 = 100,000; F02 = 1; CPT IRR = 15.77%

54. Modified IRR (MIRR) E.g. r= 14%
E.g.
r= 14%
Should we accept or reject this project?

55. Method #1: The Reinvestment Approach
With the reinvestment approach, we com- pound all cash flows (positive and negative) except the first out to the end of the project’s life and then calculate the IRR. In a sense, we are “reinvesting” the cash flows and not taking them out of the project until the very end
E.g
r= 20%
Should we accept or reject this project?

56. All cash flows (positive and negative) except the first are compounded out to the end of the project’s life and then the IRR is calculated
Step1: Calculate FV of inflow at 20%
Step2: add them all except the first.
Year 0
-$- 60
Year 1
$155
Year 2
$-100
Step1: $155*(1.2) = $186
Step2: $-100+ $155*(1.2)= $86
-60+ (86/(1+MIRR)^2)=0
MIRR using Method #1 is 19.72%
Calculator: CF0 = -60; C01 = 0; F01 = 1; C02 = 186; F02 = 1;; CPT IRR = 19.72%

57. Example Year 0 -$90,000 Year 1 $132,000 Year 2 $100,000 Year 3
-$150,000
Year 0: -$90,000
Year 1: $0
Year 2: $0
Year 3: $-$150,000 + $100,000(1.15) $132,000(1.152)=$139570
(139570/(1+MIRR)^3=0
MIRR using Method #2 is 15.75%
Calculator: CF0 = -90,000; C01 = 0; F01 = 1; C02 = 0; F02 = 1; CF3 = 139,570; F03 = 1; CPT IRR = 15.75%

58. Method #3: The Combination Approach
As the name suggests, the combination approach blends our first two methods. Negative cash flows are discounted back to the present, and positive cash flows are compounded to the end of the project
E.g
r= 20%
Should we accept or reject this project?

59. OR Year 0 -$- 60 Year 1 $155 Year 2 $-100
All negative cash flows are discounted back to the present and all positive cash flows are compounded out to the end of the project’s life
Step1: Calculate PV of outflows at 20%
Step2: Calculate FV of inflow at 20
Step3: Equate PV of outflows with the PV of FV of inflows and solve for MIRR
Step1: $ $100/(1.2)^2 = -$129.44
Step1: $155*(1.2) = $186
0 = (186/(1+MIRR)^2)= 19.87% OR
Calculator: CF0 = --129; C01 = 0; F01 = 1; C02 = 186; F02 = 1 = ; CPT IRR = 19.87%

60. Example Year 0 -$90,000 Year 1 $132,000 Year 2 $100,000 Year 3
= -$188,627.43
Year 1: $0
Year 2: $0
Year 3: $100,000(1.15) + $132,000(1.152)
= $289,570
MIRR using Method #2 is 15.36%
Year 0
-$90,000
Year 1
$132,000
Year 2
$100,000
Year 3
-$150,000
Calculator: CF0 = -188,627.43; C01 = 0; F01 = 1; C02 = 0; F02 = 1; CF3 = ; F03 = 1; CPT IRR = 15.36%

61. MIRR vs. IRR
MIRR can handle non-conventional cash flows, where as the IRR can’t
But there are problems with MIRR:
There are three methods, and three different MIRRs. Which MIRR is correct? The differences could be larger on a more complex project
MIRR is a rate of return on a modified set of cash flows, not the project’s actPoint out that we calculated MIRRs of 15.77%, 15.75% and 15.36%. All of the MIRRs are correct. There is no reason to say that one of the three methods is superior to the others.
ual cash flows
Since the MIRR depends on an externally supplied discount rate, the result is not truly an “internal” rate of return
Point out that we calculated MIRRs of 15.77%, 15.75% and 15.36%. All of the MIRRs are correct. There is no reason to say that one of the three methods is superior to the others.

63. The Scale Problem Which project should we pick ?
Occur when the initial investment size is not the same
Consider the following two investments
The high percentage return on the small budget investment is more than offset by the ability to earn a lower rate of return on the large budget investment.
Which project should we pick ?
Year 1
Year 2
IRR
Small Budget
-$10mn
$40mn
$22mn
300%
Large Budget
-$25mn
$65mn
$27mn
160%

64. The Timing Problem $10,000 $1,000 $1,000 Project A 0 1 2 3 -$10,000
Occur when the Cash flows from one project is unsimilar from the other
$10, $1,000 $1,000
-$10,000
Project A
The preferred project in this case depends on the discount rate, not the IRR.
$1, $1, $12,000
-$10,000
Project B

65. The Timing Problem The discount rate is 10%. NPV of Project A:
NPV of Project B:
Based on NPV, we select:

66. The Timing Problem IRR of Project A: IRR of Project B:
Based on IRR, we select:

67. The Timing Problem The discount rate is 10%.
Based on NPV, we select: B
NPV of Project A: $668.67
NPV of Project B: $751.31
Based on IRR, we select: A
IRR of Project A: %
IRR of Project B: %

68. The Timing Problem Mutually Exclusive Investments

69. The Timing Problem 10.55% = crossover rate 12.94% = IRRB 16.04% = IRRA
The cross-over rate is the IRR of project A-B

70. Capital Budgeting In Practice
We should consider several investment criteria when making decisions
NPV and IRR are the most commonly used primary investment criteria
Payback is a commonly used secondary investment criteria

71. Summary – DCF Criteria Net present value Internal rate of return
Difference between market value and cost
Take the project if the NPV is positive
Has no serious problems
Preferred decision criterion
Internal rate of return
Discount rate that makes NPV = 0
Take the project if the IRR is greater than the required return
Same decision as NPV with conventional cash flows
IRR is unreliable with nonconventional cash flows or mutually exclusive projects
Profitability Index
Benefit-cost ratio
Take investment if PI > 1
Cannot be used to rank mutually exclusive projects
May be used to rank projects in the presence of capital rationing

72. Summary – Payback Criteria
Payback period
Length of time until initial investment is recovered
Take the project if it pays back within some specified period
Doesn’t account for time value of money, and there is an arbitrary cutoff period
Discounted payback period
Length of time until initial investment is recovered on a discounted basis
Take the project if it pays back in some specified period
There is an arbitrary cutoff period

73. Summary – Accounting Criterion
Average Accounting Return
Measure of accounting profit relative to book value
Similar to return on assets measure
Take the investment if the AAR exceeds some specified return level
Serious problems and should not be used

74. Survey evidence on the popularity of different capital budgeting methods:
What techniques does your firm use to evaluate projects?
IRR represents Internal Rate of Return, NPV is Net Present Value,
P/E is the Price to Earnings ratio, and APV is Adjusted Present Value

75. Quick Quiz
Consider an investment that costs $100,000 and has a cash inflow of $25,000 every year for 5 years. The required return is 9%, and required payback is 4 years.
What is the payback period?
What is the discounted payback period?
What is the NPV?
What is the IRR?
Should we accept the project?
What decision rule should be the primary decision method?
When is the IRR rule unreliable?

76. Ethics Issues
An ABC poll in the spring of 2004 found that one-third of students age 12 – 17 admitted to cheating and the percentage increased as the students got older and felt more grade pressure. If a book entitled “How to Cheat: A User’s Guide” would generate a positive NPV, would it be proper for a publishing company to offer the new book?
Should a firm exceed the minimum legal limits of government imposed environmental regulations and be responsible for the environment, even if this responsibility leads to a wealth reduction for the firm? Is environmental damage merely a cost of doing business?
Should municipalities offer monetary incentives to induce firms to relocate to their areas?

77. Comprehensive Problem
An investment project has the following cash flows: CF0 = -1,000,000; C01 – C08 = 200,000 each
If the required rate of return is 12%, what decision should be made using NPV?
How would the IRR decision rule be used for this project, and what decision would be reached?
How are the above two decisions related?