Two mutually exclusive projects have the following projected cash flows:<?xml:namespace prefix = o ns =
“urn:schemas-microsoft-com:office:office” />
Project A Project B
Year Cash Flow Cash Flow
0 -$50,000 -$50,000
1 15,625 0
2 15,625 0
3 15,625 0
4 15,625 0
5 15,625 99,500
If the required rate of return on these projects is 10%, which would be chosen and why?
Answer
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a. Project B because it has the higher NPV. |
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b. Project B because it has the higher IRR. |
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c. Project A because it has the higher NPV. |
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d. Project A because it has the higher IRR. |
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e. Neither, because both have IRRs less than the cost of capital. |
