Terry Robe Industries has a WACC of 11% and is assessing three projects. Which project should be prioritized based on NPV and IRR?

When assessing which project to prioritize based on NPV (Net Present Value) and IRR (Internal Rate of Return), both metrics offer valuable insights regarding the potential profitability of each project against the company's cost of capital, which in this case is represented by the WACC of 11%.

The project with the highest NPV is usually prioritized because it adds the most value to the company. NPV measures the difference between the present value of cash inflows and outflows, providing a direct indication of the expected profitability of the project. Additionally, the IRR gives an indication of the project's rate of return; if the IRR exceeds the WACC, the project is considered a good investment.

In this scenario, the project with NPV of $8,600 and IRR of 17% stands out. This project not only offers a substantial positive NPV that indicates a high potential for adding value to the company, but it also has an IRR that significantly exceeds the WACC of 11%. This suggests that the project is likely to generate returns that exceed the cost of capital, resulting in increased shareholder value.

While the other projects have positive NPVs and IRRs, none surpass the performance of the project with an NPV of $8