Suppose the Canadian Space Agency has two mutually exclusive projects: landing a person on Mars and landing a person on Venus.Project Mars has an IRR of 12% and project Venus has an IRR of 15%.The crossover rate is 9%.The project's appropriate discount rate is 10%.

Question

Quizplus · Accepted Answer

The crossover rate is the discount rate at which the NPVs of two projects are equal. In this case, the crossover rate is 9%. Since the appropriate discount rate for this decision is 10%, project Venus (with an IRR of 15%) has a higher NPV than project Mars (with an IRR of 12%) and is therefore the better choice. Therefore, the best choice is to accept project Venus (answer B) and reject project Mars (answer A). Accepting both projects (answer C) would not be optimal as it would require more resources and may not be feasible. Rejecting both projects (answer D) would mean missing out on potential opportunities for exploration and discovery.

Suppose the Canadian Space Agency Has Two Mutually Exclusive Projects