Farrah Corporation is considering two projects (see below)

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Farrah Corporation is considering two projects (see below). For your analysis, assume these projects are mutually exclusive with a required rate of return of 12%.

Project 1 Project 2

Initial investment  $185,000  $1,100,000

Cash inflow Year 1

$230,000  $1,450,000

 

 

Compute the following for each project:

 

·        NPV (net present value)

·        PI (profitability index)

·        IRR (internal rate of return)

 

Which project should be selected? Why?