Kemp & Co. is faced with a problem of choosing among two alternative investments. It can invest either in Project A right now or wait for a year and invest in Project B. The following are the cash flows of the two projects:
Projects C0 C1 C2 C3
A (Rs) – 6,000 8,000 2,000 2,000
B (Rs) — – 8,000 12,000 4,000
Assume a required rate of return of 10 per cent. Which project should the firm select? Use the present value and internal rate of return methods. Also calculate the rate of return for incremental cash flows.