Which of the following statements is correct? A) You should invest in project Beta since NPV_Beta 0. B) You should invest in project Alpha since IRR_Alpha IRR_Beta. C) Your should invest in project Alpha since NPV_Alpha 0.

Question

Which of the following statements is correct? A) You should invest in project Beta since NPV_Beta > 0. B) You should invest in project Alpha since IRR_Alpha > IRR_Beta. C) Your should invest in project Alpha since NPV_Alpha < 0. D) You should invest in project Beta since IRR_Bet_a > 0.

Quizplus · Accepted Answer

A) NPV Alpha NPV = -79 + 20/(1.15)¹ + 25/(1.15)² + 30/(1.15)³ + 35/(1.15)⁴ + 40/(1.15)⁵= 16.92 NPV Beta NPV = -80 + 25/(1.16)¹ + 25/(1.16)² + 25/(1.16)³ + 25/(1.16)⁴ + 25/(1.16)⁵ + 25/(1.16)⁶ + 25/(1.16)⁷= 20.96 IRR Alpha CF₀ = -79 CF₁ = 20 CF₂ = 25 CF₃ = 30 CF₄ = 35 CF₅ = 40 Compute IRR = 22.68 IRR Beta PV = -80 PMT = 25 FV = 0 N = 7 Compute I = 24.52

Which of the Following Statements Is Correct