Linh's Recommendations for Projects A and B: Making the Right Decision

Linh, a diligent analyst, has conducted a thorough evaluation of two independent projects, A and B. She has calculated the net present value (NPV) and internal rate of return (IRR) for both projects. Project A has an NPV of $3,650 and an IRR of 19%, while project B has an NPV of $5,400 and an IRR of 9.5%. Now, Linh faces the crucial task of making recommendations regarding these two projects. Considering the financial metrics, Linh should base her decision on the NPV and IRR values. The NPV measures the profitability of an investment by calculating the present value of expected cash flows, while the IRR represents the rate at which the project's net cash inflows equal its initial investment. Both metrics are essential in determining the viability and potential returns of a project. Project A has a positive NPV of $3,650, indicating that the project's expected cash inflows exceed its initial investment. Additionally, the IRR of 19% is higher than the required rate of return, suggesting that the project is expected to generate a return higher than Linh's minimum acceptable rate. These favorable metrics indicate that project A is financially attractive. On the other hand, project B has an even higher NPV of $5,400, indicating a greater potential for profitability. However, the IRR of 9.5% is lower than the required rate of return. This suggests that project B may not generate a return higher than Linh's minimum acceptable rate. While the project still has a positive NPV, the lower IRR raises concerns about its long-term profitability. Based on these evaluations, Linh should make the recommendation to accept project A only. Project A demonstrates a higher IRR and a positive NPV, indicating a higher potential for profitability and meeting Linh's investment criteria. Project B, although having a higher NPV, falls short in terms of the IRR, raising doubts about its long-term profitability. In conclusion, Linh's recommendation is to accept project A only. By considering the financial metrics of NPV and IRR, Linh can make an informed decision that maximizes the potential returns and aligns with her investment criteria. It is crucial for Linh to carefully evaluate the financial aspects of each project to ensure the best outcome for her investment.