You are considering two independent projects with the following cash flows.The required return for both projects is 16 percent.Given this information,which one of the following statements is correct?
A)You should accept Project A and reject Project B based on their respective NPVs.
B)You should accept Project B and reject Project A based on their respective NPVs.
C)You should accept Project A and reject Project B based on their respective IRRs.
D)You should accept Project B and reject Project A based on their respective IRRs.
E)You should accept both projects based on both the NPV and IRR decision rules.

Question

You are considering two independent projects with the following cash flows.The required return for both projects is 16 percent.Given this information,which one of the following statements is correct? 
A)You should accept Project A and reject Project B based on their respective NPVs. 
B)You should accept Project B and reject Project A based on their respective NPVs. 
C)You should accept Project A and reject Project B based on their respective IRRs. 
D)You should accept Project B and reject Project A based on their respective IRRs. 
E)You should accept both projects based on both the NPV and IRR decision rules.

Quizplus · Accepted Answer

Since both projects have a required return of 16 percent, we can compare them using the NPV and IRR decision rules. Both Project A and Project B have positive NPVs and IRRs greater than the required return of 16 percent, which means they are both acceptable. Therefore, the best choice is to accept both projects based on both the NPV and IRR decision rules.

You Are Considering Two Independent Projects with the Following Cash