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The IRR for A is 24 percent, and the IRR for B is 21 percent. Because these investments are mutually exclusive, we can only take one of them. Simple intuition suggests that Investment A is better because of its higher return. Unfortunately, simple intuition is not always correct.

To see why Investment A is not necessarily the better of the two investments, we've calculated the NPV of these investments for different required returns:

Discount Rate

NPV(A)

NPV(B)

0%

$60.00

$70.00

0 0

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