Two projects being considered are mutually exclusive and have the following projected cash flows: If the required rate of return on these projects is 10 percent,which would be chosen and why?
A) Project B because of higher NPV.
B) Project B because of higher IRR.
C) Project A because of higher NPV.
D) Project A because of higher IRR.
E) Neither,because both have IRRs less than the required return.

Question

Two projects being considered are mutually exclusive and have the following projected cash flows:  If the required rate of return on these projects is 10 percent,which would be chosen and why?
A) Project B because of higher NPV. 
B) Project B because of higher IRR. 
C) Project A because of higher NPV. 
D) Project A because of higher IRR. 
E) Neither,because both have IRRs less than the required return.

Quizplus · Accepted Answer

To choose between mutually exclusive projects, the one with the highest net present value (NPV) should be selected. Project A has a higher NPV ($1,773.60) than Project B ($1,692.90) at a required rate of return of 10%. While Project B has a higher internal rate of return (IRR), it is not the sole determining factor in project selection as NPV is considered as the better measure of profitability. Therefore, Project A should be chosen because of its higher NPV.

Two Projects Being Considered Are Mutually Exclusive and Have the Following