A company is considering two mutually exclusive projects, A and B. Project A requires an initial investment of $100, followed by cash flows of $95, $20, and $5. Project B requires an initial investment of $100, followed by cash flows of $0, $20, and $130. What is the IRR of the project that is best for the company's shareholders? The firm's cost of capital is 10 percent.
A) 15.24 percent
B) 15.96 percent
C) 16.17 percent
D) 15.42 percent

Question

Quizplus · Accepted Answer

The IRR of Project A is 15.24 percent, while the IRR of Project B is 15.96 percent. Therefore, Project B is the better investment for the company's shareholders.

A Company Is Considering Two Mutually Exclusive Projects, a and B