Table 12.6
Yong Importers, an Asian import company, is evaluating two mutually exclusive projects, A and B. The relevant cash flows for each project are given in the table below. The cost of capital for use in evaluating each of these equally risky projects is 10 percent.
-Which project should be chosen using the Annualized NPV approach? (See Table 12.6)
A) Project A because its annualized NPV is higher
B) Project B because its NPV is higher
C) Project A because its IRR is higher
D) Project B because its annualized NPV is higher

Question

Table 12.6
Yong Importers, an Asian import company, is evaluating two mutually exclusive projects, A and B. The relevant cash flows for each project are given in the table below. The cost of capital for use in evaluating each of these equally risky projects is 10 percent. 
-Which project should be chosen using the Annualized NPV approach? (See Table 12.6)
A) Project A because its annualized NPV is higher 
B) Project B because its NPV is higher 
C) Project A because its IRR is higher 
D) Project B because its annualized NPV is higher

Quizplus · Accepted Answer

The Annualized NPV approach converts the NPV of projects with different lifespans into an equivalent annual amount. The project with the higher annualized NPV should be chosen, which is Project A according to the given choice.

Table 12.6 Yong Importers, an Asian Import Company, Is Evaluating Two Mutually