You are considering the following two mutually exclusive projects that will not be repeated.The required rate of return is 11.25% for project A and 10.75% for project B.Which project should you accept and why? $\begin{array}{cccl}
\underline{\text { Year } }&\underline{\text { Project A }}& & \underline{\text { Project B }} \
0 &-\$ 48,000 & & -\$ 126,900 \
1 &\$ 18,400 & & \$ 69,700 \
2 & \$ 31,300 & & \$ 80,900\
3 & \$ 11,700 & & \$ 0\

\end{array}$

A)project A; because its NPV is about $335 more than the NPV of project B.
B)project A; because it has the higher required rate of return.
C)project B; because it has the largest total cash inflow.
D)project B; because it returns all its cash flows within two years.
E)project B; because it is the largest sized project.

Question

You are considering the following two mutually exclusive projects that will not be repeated.The required rate of return is 11.25% for project A and 10.75% for project B.Which project should you accept and why? $\begin{array}{cccl}
\underline{\text { Year } }&\underline{\text { Project A }}& & \underline{\text { Project B }} \
0 &-\$ 48,000 & & -\$ 126,900 \
1 &\$ 18,400 & & \$ 69,700 \
2 &  \$ 31,300 & & \$ 80,900\
3 & \$ 11,700 & & \$ 0\

\end{array}$

A)project A; because its NPV is about $335 more than the NPV of project B.
B)project A; because it has the higher required rate of return.
C)project B; because it has the largest total cash inflow.
D)project B; because it returns all its cash flows within two years.
E)project B; because it is the largest sized project.

Quizplus · Accepted Answer

To determine which project should be accepted, we need to calculate the net present value for each project using their respective required rates of return.

For project A: 
NPV(A) = -$48,000 + $\frac{18,400}{(1+0.1125)} + \frac{31,300}{(1+0.1125)^2} + \frac{11,700}{(1+0.1125)^3} = $12,327.34

For project B: 
NPV(B) = -$126,900 + $\frac{69,700}{(1+0.1075)} + \frac{80,900}{(1+0.1075)^2} + \frac{0}{(1+0.1075)^3} = $11,992.76

Since project A has a higher NPV, it is the best choice.

You Are Considering the Following Two Mutually Exclusive Projects That