You are considering the following two mutually exclusive projects.The required rate of return is 14.6 percent for project A and 13.8 percent for project B.Which project should you accept and why?

A) project A; because it has the higher required rate of return
B) project A; because its NPV is about $4,900 more than the NPV of project B
C) project B; because it has the largest total cash inflow
D) project B; because it has the largest cash inflow in year one
E) project B; because it has the lower required return

Question

You are considering the following two mutually exclusive projects.The required rate of return is 14.6 percent for project A and 13.8 percent for project B.Which project should you accept and why? 
 
A) project A; because it has the higher required rate of return 
B) project A; because its NPV is about $4,900 more than the NPV of project B 
C) project B; because it has the largest total cash inflow 
D) project B; because it has the largest cash inflow in year one 
E) project B; because it has the lower required return

Quizplus · Accepted Answer

The best choice is project A, because it has a higher required rate of return and generates a higher net present value (NPV) than project B. The difference in NPV between the two projects is about $4,900, which indicates that project A is more profitable. The required rate of return is used to evaluate the riskiness of the projects, and project A has a higher risk than project B, so it offers a higher return to investors. Therefore, project A is the best choice based on financial analysis.

You Are Considering the Following Two Mutually Exclusive Projects