An investor is considering the two investments shown above.Her cost of capital is 9%.Which of the following statements about these investments is TRUE?
A)The investor should take investment A since it has a greater net present value (NP
V).
B)The investor should take investment A since it has a greater internal rate of return (IR
R).
C)The investor should take investment B since it has a greater net present value (NP
V).
D)The investor should take investment B since it has a greater internal rate of return (IR
R).
E)The investor should take investment B since it has a shorter payback period.

Question

An investor is considering the two investments shown above.Her cost of capital is 9%.Which of the following statements about these investments is TRUE?
A)The investor should take investment A since it has a greater net present value (NP
V). 
B)The investor should take investment A since it has a greater internal rate of return (IR
R). 
C)The investor should take investment B since it has a greater net present value (NP
V). 
D)The investor should take investment B since it has a greater internal rate of return (IR
R). 
E)The investor should take investment B since it has a shorter payback period.

Quizplus · Accepted Answer

To determine the best investment, we need to compare the net present values (NPVs) of both investments at the cost of capital of 9%. Investment A has an NPV of $4,304.20, while Investment B has an NPV of $14,029.52. Therefore, Investment B has a greater NPV and is the better investment choice. The internal rate of return (IRR) and payback period are not relevant in this case since we have already determined that Investment B has the higher NPV.

An Investor Is Considering the Two Investments Shown Above