A company is considering two mutually exclusive projects, A and B. Project A requires an initial investment of $200, followed by cash flows of $185, $40 and $15. Project B requires an initial investment of $200, followed by cash flows of $0, $50 and $230. What is the IRR of the project that is best for the company's shareholders? The firm's cost of capital is 10%.
A) 15.45%
B) 15.12%
C) 13.57%
D) 12.71%

Question

Quizplus · Accepted Answer

Using a financial calculator: Project A: NPV = 12.51; IRR = 15.45%; Project B: NPV = 14.12; IRR = 12.71%; NPV is best statistic; Project B is better, therefore the IRR of the best project is 12.71%

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