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 NPVBeta 0 B) invest in project Alpha, since NPVBeta IRRA D) invest in project Beta, since NPVBeta NPVAlpha 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 NPVBeta > 0 
B) invest in project Alpha, since NPVBeta < NPVAlpha 
C) invest in project Beta, since IRRB > IRRA 
D) invest in project Beta, since NPVBeta > NPVAlpha > 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