What discount rate would result in the same NPV for both projects?
Consider the two projects below. The cash flows as well as the NPV and IRR for the two projects are given. For both projects, the required rate of return is 10 percent.
Cash Flows
Year 0 1 2 3 4 NPV IRR (%)
Project 1 ?100 36 36 36 36 14.12 16.37
Project 2 ?100 0 0 0 175 19.53 15.02
a. A rate between 0.00 percent and 10.00 percent.
b. A rate between 10.00 percent and 15.02 percent.
c. A rate between 15.02 percent and 16.37 percent.
Answer: b. A rate between 10.00 percent and 15.02 percent.
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