Question

Assuming a 10% WACC
A) If the following were mutually exclusive, which project would you accept and explain why?
B) Which project would you take if they were independent and explain why?

Period	Project A	Project B
IRR	19%	22%
NPV	64	60

Answer 1

A) Answer : Project A,

Reason : Because for mutually exclusive projects we should consider project that has higher npv because it adds value to the company, in this case project A has higher Npv than project B so we should select Project A as it adds value to company although project B has higher IRR than project A.

B) Answer : project A

Reason : Because incase of Independent projects the project withcwith positive Npv should be accepted in this case both projects have positive Npv however Npv is a absolute measure and IRR is a relative measure of conflict arises then we should accept company with higher Npv.