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Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below....

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Finance

Suppose your firm is considering two mutually exclusive,required projects with the cash flows shown below. The requiredrate of return on projects of both of their risk class is 10percent. Project A s Cash flow from year 0 to year 3: -1000, 400,400, 700. Project B s Cash flow from year 0 to year 3: -500, 200,300, 300. Which statement is correct?

A-Accept A, reject B, because B has lower IRR

B-Reject A, accept B, because B has higher NPV

C-Reject A, accept B, because B has higher IRR

D-Accept A, reject B, because A has higher NPV

Answer & Explanation Solved by verified expert
4.2 Ratings (854 Votes)
Project A Net present value is solved using a financial calculator The steps to solve on the financial calculator Press the CF button CF0 1000 It is entered with a negative sign since it is a cash outflow Cash flow for the three year should be entered Press Enter and down arrow after inputting each cash flow After entering the last cash flow cash flow press the NPV button and enter the required return of 10 Press the    See Answer
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Transcribed Image Text

Suppose your firm is considering two mutually exclusive,required projects with the cash flows shown below. The requiredrate of return on projects of both of their risk class is 10percent. Project A s Cash flow from year 0 to year 3: -1000, 400,400, 700. Project B s Cash flow from year 0 to year 3: -500, 200,300, 300. Which statement is correct?A-Accept A, reject B, because B has lower IRRB-Reject A, accept B, because B has higher NPVC-Reject A, accept B, because B has higher IRRD-Accept A, reject B, because A has higher NPV

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