A company is considering two mutually exclusive projects, A and B. Project A requires an initial investment of $100, followed by cash flows of $95, $20 and $5. Project B requires an initial investment of $100, followed by cash flows of $0, $20 and $130. What is the IRR of the project that is best for the company's shareholders? The firm's cost of capital is 10%.
A) 15.24%
B) 15.96%
C) 16.17%
D) 15.42%

Question

Quizplus · Accepted Answer

Using a financial calculator: Project A: NPV = 6.65; IRR = 15.96%; Project B: NPV = 14.20; IRR = 15.24%; NPV is best statistic, therefore the IRR of the best project is 15.24%

A Company Is Considering Two Mutually Exclusive Projects, a and B