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A company is considering two mutually exclusive projects, Project A and Project B. The projects have the following expected cash flows over a 4-year period:

  • Project A:

    • Initial investment: $200,000
    • Year 1: $80,000
    • Year 2: $70,000
    • Year 3: $60,000
    • Year 4: $50,000

  • Project B:

    • Initial investment: $250,000
    • Year 1: $100,000
    • Year 2: $90,000
    • Year 3: $80,000
    • Year 4: $70,000

The company's cost of capital is 10%.

  1. Net Present Value (NPV):
    Calculate the NPV for both Project A and Project B. Which project should the company choose based on the NPV criterion?

  2. Internal Rate of Return (IRR):
    Calculate the IRR for both projects. If the company decides to choose a project based on IRR, which project should it choose?

  3. Payback Period:
    Determine the payback period for both projects. How does the payback period compare to the other decision criteria?

  4. Modified Internal Rate of Return (MIRR):
    Calculate the MIRR for both projects. Discuss how MIRR addresses some of the issues associated with using IRR as a decision criterion.

  5. Profitability Index (PI):
    Calculate the Profitability Index for both projects. How does this metric affect the decision between the two projects?


  1. Calculate and compare the NPV, IRR, payback period, MIRR, and PI for both projects.
  2. Recommend which project the company should pursue based on the calculated financial metrics.
  3. Discuss any potential conflicts in decision-making criteria (e.g., NPV vs. IRR).
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