A company is considering which of two mutually exclusive projects it should undertake. The Finance Director thinks that the project with higher NPV should be chosen whereas the managing Director thinks that the one with higher IRR should be undertaken especially as both projects have the same initial outlay and length of life. The company anticipates a cost of capital of 10% and the net after tax cash flows of the project is as follows
(Cash flows Figs 000)
Project X Project y
Cash Outflow 200 200
Year 1 35 218
Year2 80 10
Year 3 90 10
Year 4 75 4
Year 5 20 3
Project X is discounted by 10% and Project Y is discounted by 20%.
a. Calculate NPV & IRR of each project
b. State with reasons which project you would recommend
c. Explain the inconsistency in raking the projects

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