Tara is evaluating two mutually exclusive capital budgeting projects that have the following characteristics: If the firm's required rate of return (r)is 10 percent,which project should be purchased?
A) Both projects should be purchased,because the IRRs for both projects exceed the firm's required rate of return.
B) Neither project should be accepted,because the IRRs for both projects exceed the firm's required rate of return.
C) Project Q should be accepted,because its net present value (NP
V)is higher than Project R's NPV.
D) Project R should be accepted,because its net present value (NP
V)is higher than Project Q's NPV.
E) None of the above is a correct answer.

Question

Tara is evaluating two mutually exclusive capital budgeting projects that have the following characteristics:  If the firm's required rate of return (r)is 10 percent,which project should be purchased?
A) Both projects should be purchased,because the IRRs for both projects exceed the firm's required rate of return. 
B) Neither project should be accepted,because the IRRs for both projects exceed the firm's required rate of return. 
C) Project Q should be accepted,because its net present value (NP
V)is higher than Project R's NPV. 
D) Project R should be accepted,because its net present value (NP
V)is higher than Project Q's NPV. 
E) None of the above is a correct answer.

Quizplus · Accepted Answer

The best choice would be to accept Project Q since its net present value (NPV) is higher than Project R's NPV. Even though both projects have an internal rate of return (IRR) higher than the required rate of return, it is important to consider the NPV when comparing mutually exclusive projects. The NPV reflects the value of the project in terms of cash flows and time value of money, and Project Q has a higher NPV than Project R. Therefore, Project Q should be selected over Project R.

Tara Is Evaluating Two Mutually Exclusive Capital Budgeting Projects That