Consider the following two projects: 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

Consider the following two projects:

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

A) NPVA = -100 + 40 / (1 + 0.11)1 + 50 / (1 + 0.11)2 + 60 / (1 + 0.11)3 = $20.49;
NPVB = -73 + 30 / (1 + 0.11)1 + 30 / (1 + 0.11)2 + 30 / (1 + 0.11)3 + 30 / (1 + 0.11)4 = $20.07

Consider the Following Two Projects