You are considering two mutually exclusive projects with the following cash flows.Will your choice between the two projects differ if the required rate of return is 8% rather than 11% ? If so,what should you do?
$\begin{array}{|l|l|l|}
\hline \text { Year } & \text { Project A } & \text { Project B } \
\hline 0 & -£ 240,000 & -£ 198,000 \
\hline 1 & £ 0 & £ 110,800 \
\hline 2 & £ 0 & £ 82,500 \
\hline 3 & £ 325,000 & £ 45,000 \
\hline
\end{array}$
A)yes; Select A at 8% and B at 11%.
B)yes; Select B at 8% and A at 11%.
C)yes; Select A at 8% and select neither at 11%.
D)no; Regardless of the required rate,project A always has the higher NPV.
E)no; Regardless of the required rate,project B always has the higher NPV.

Question

Quizplus · Accepted Answer

At 8%, the NPV of Project A is £55,585, while the NPV of Project B is £14,284. Therefore, we should select Project A.
At 11%, the NPV of Project A is £11,367, while the NPV of Project B is £4,112. Therefore, we should select Project B.
Thus, the choice between the two projects depends on the required rate of return. At 8%, we should select Project A, and at 11%, we should select Project B.

You Are Considering Two Mutually Exclusive Projects with the Following