You are considering the following two mutually exclusive projects.The required rate of return is 14.6 percent for project A and 13.8 percent for project B.Which project should you accept and why?
A) project A; because it has the higher required rate of return
B) project A; because its NPV is about $4,900 more than the NPV of project B
C) project B; because it has the largest total cash inflow
D) project B; because it has the largest cash inflow in year one
E) project B; because it has the lower required return

Question

You are considering the following two mutually exclusive projects.The required rate of return is 14.6 percent for project A and 13.8 percent for project B.Which project should you accept and why?  
A) project A; because it has the higher required rate of return 
B) project A; because its NPV is about $4,900 more than the NPV of project B 
C) project B; because it has the largest total cash inflow 
D) project B; because it has the largest cash inflow in year one 
E) project B; because it has the lower required return

Quizplus · Accepted Answer

The decision should be based on the NPV of each project. Project A has a higher required rate of return, indicating it is riskier, but it has a higher NPV of approximately $4,900 compared to project B. Therefore, project A should be accepted over project B. The total cash inflow or the cash inflow in year one is not sufficient to make a decision between these two mutually exclusive projects.

You Are Considering the Following Two Mutually Exclusive Projects