Two projects being considered are mutually exclusive and have the following projected cash flows: $$\begin{array} { | c | c | c | }
\hline \text { Year } & \text { Project A } & \text { Project B } \
\hline 0 & - \$ 50,000 & - \$ 50,000 \
\hline 1 & \$ 15,625 & 0 \
\hline 2 & \$ 15,625 & 0 \
\hline 3 & \$ 15,625 & 0 \
\hline 4 & \$ 15,625 & 0 \
\hline 5 & \$ 15,625 & \$ 99,500 \
\hline
\end{array}$$ If the required rate of return on these projects is 10%, which would be chosen and why?

Question

Two projects being considered are mutually exclusive and have the following projected cash flows: $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \text { Project A } & \text { Project B } \
\hline 0 & - \$ 50,000 & - \$ 50,000 \
\hline 1 & \$ 15,625 & 0 \
\hline 2 & \$ 15,625 & 0 \
\hline 3 & \$ 15,625 & 0 \
\hline 4 & \$ 15,625 & 0 \
\hline 5 & \$ 15,625 & \$ 99,500 \
\hline
\end{array}$$ If the required rate of return on these projects is 10%, which would be chosen and why?

Quizplus · Accepted Answer

Project A has an NPV of $21,447 and an IRR of 12.5%. Project B has an NPV of $24,750 and an IRR of 15%. Therefore, Project B would be chosen because it has a higher NPV.

Two Projects Being Considered Are Mutually Exclusive and Have the Following