Consider the following two projects: Assume that projects A and B are mutually exclusive. The correct investment decision and the best rationale for that decision is to ________. 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

Consider the following two projects: Assume that projects A and B are mutually exclusive. The correct investment decision and the best rationale for that decision is to ________. 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

A) NPV_A = -100 + 40 / (1 + 0.11)¹ + 50 / (1 + 0.11)² + 60 / (1 + 0.11)³ = $20.49; NPV_B = -73 + 30 / (1 + 0.11)¹ + 30 / (1 + 0.11)² + 30 / (1 + 0.11)³ + 30 / (1 + 0.11)⁴ = $20.07

Consider the Following Two Projects: Assume That Projects a and B