Two projects being considered by a firm are mutually exclusive and have the following projected cash flows: $\begin{array}{lll}
\underline{\text { Year }} &\underline{ \text { Project A }}&\underline{ \text { Project B }}\
0 & (\$ 100,00) & (\$ 100,000 \
1 & 39,500 & 0 \
2 & 39,500 & 0 \
3 & 39,500 & 133,000
\end{array}$ Based only on the information given, which of the two projects would be preferred, and why?
A)Project A, because it has a shorter payback period.
B)Project B, because it has a higher IRR.
C)Indifferent, because the projects have equal IRRs.
D)Include both in the capital budget, since the sum of the cash inflows exceeds the initial investment in both cases.
E)Choose neither, since their NPVs are negative.

Question

Quizplus · Accepted Answer

Project B has a higher IRR, which means it is expected to generate a higher return on investment.

Two Projects Being Considered by a Firm Are Mutually Exclusive