Final answer:
To calculate the IRR and NPV for each investment, you will need the cash flows for each investment. Use the IRR and NPV functions in Excel to calculate the internal rate of return and net present value. Choose the investment with the higher IRR and NPV. Prioritize NPV over IRR if there is a conflict.
Step-by-step explanation:
To calculate the IRR and NPV for each investment, you will need the cash flows for each investment. Once you have the cash flows, you can use the IRR function to calculate the internal rate of return and the NPV function to calculate the net present value.
For example, let's say we have two investments: Investment A and Investment B. Here are the cash flows for each investment:
Investment A: -$10,000, $2,000, $2,000, $2,000
Investment B: -$8,000, $4,000, $4,000, $4,000
Using the IRR function in Excel, you can calculate the internal rate of return for each investment. The IRR for Investment A is 25% and the IRR for Investment B is 50%.
Next, you can use the NPV function in Excel to calculate the net present value for each investment. Assuming the required rate of return is 20%, the NPV for Investment A is $1,178.12 and the NPV for Investment B is $662.20.
Based on the calculated IRRs and NPVs, you should choose Investment B because it has a higher IRR and a higher NPV. If there is a conflict between IRR and NPV as decision-making criteria, you should prioritize NPV over IRR. This is because NPV takes into account the time value of money and provides a more accurate measure of profitability.