Use the table for the question(s) below. Consider the following two projects: -Assume that projects A and B are mutually exclusive.What is the correct investment decision and the best rationale for that decision? A) Invest in project A since NPV_B IRR_A C) Invest in project B since NPV_B NPV_A D) Invest in project A since NPV_A 0

Question

Use the table for the question(s) below. Consider the following two projects: -Assume that projects A and B are mutually exclusive.What is the correct investment decision and the best rationale for that decision? A) Invest in project A since NPV_B < NPV_A B) Invest in project B since IRR_B > IRR_A C) Invest in project B since NPV_B > NPV_A D) Invest in project A since NPV_A > 0

Quizplus · Accepted Answer

C) NPV_A = -100 + 40 / (1.15)¹ + 50 / (1.15)² + 60 / (1.15)³ = 12.04 NPV_B = -73+ 30 / (1.15)¹ + 30 / (1.15)² + 30 / (1.15)³ + 30 / (1.15)⁴ = 12.64 IRR A CF₀ = -100 CF₁ = 40 CF₂ = 50 CF₃ = 60 Compute IRR = 21.65% IRR B CF₀ = -73 CF₁ = 30 CF₂ = 30 CF₃ = 30 CF₄ = 30 Compute IRR = 23.34%

Use the Table for the Question(s) Below