Use the table for the question(s)below. Consider the following two projects with cash flows in $: -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 NPVB IRRA. C)invest in project B since NPVB NPVA. D)invest in project A since NPVA 0.

Question

Use the table for the question(s)below.
Consider the following two projects with cash flows in $: 
-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 NPVB < NPVA. 
B)invest in project B since IRRB > IRRA. 
C)invest in project B since NPVB > NPVA. 
D)invest in project A since NPVA > 0.

Quizplus · Accepted Answer

The correct investment decision is to invest in project B since it has a higher net present value (NPVB > NPVA) and thus generates more value for the investor. The fact that the internal rate of return (IRRB) for project B is also higher than the one for project A is not relevant when selecting the best investment option between two mutually exclusive projects. The fact that NPVA is positive does not necessarily make project A a better investment option as it is still generating less value than project B.

Use the Table for the Question(s)below