Consider the following two projects: Assume that projects Alpha and Beta are mutually exclusive. The correct investment decision and the best rationale for that decision is to ________. A) invest in project Beta, since NPV_Beta 0 B) invest in project Alpha, since NPV_Beta IRR_A D) invest in project Beta, since NPV_Beta NPV_Alpha 0

Question

Consider the following two projects: Assume that projects Alpha and Beta are mutually exclusive. The correct investment decision and the best rationale for that decision is to ________. A) invest in project Beta, since NPV_Beta > 0 B) invest in project Alpha, since NPV_Beta < NPV_Alpha C) invest in project Beta, since IRR_B > IRR_A D) invest in project Beta, since NPV_Beta > NPV_Alpha> 0

Quizplus · Accepted Answer

D) NPV Alpha NPV = -$79 + $20 / (1 + 0.16)¹ + $25 / (1 + 0.16)² + $30 / (1 + 0.16)³ + $35 / (1 + 0.16)⁴ + $40 / (1 + 0.16)⁵= 14.41 NPV Beta NPV = -$80 + 25 / (1 + 0.15)¹ + $25 / (1 + 0.15)² + $25 / (1 + 0.15)³ + $25 / (1 +0.15)⁴ + $25 / (1 + 0.15)⁵+ $50 / (1 + 0.15)⁶ + $25 / (1 + 0.15)⁷= 24.01

Consider the Following Two Projects: Assume That Projects Alpha