Question

Given the following cash flows for a two mutually exclusive projects (A&B) and assuming 16% cost...

Given the following cash flows for a two mutually exclusive projects (A&B) and assuming 16% cost of capital; answer the next 2 questions:

year Project A Project B
0 -5000 -1000
1 2500 600
2 2500 600
3 2500 600

1)  Which project should be accepted, if any and why?

A: Project B; it has a higher IRR and PI

B: Neither project should be accepted, they both have negative NPVs

C: Both project should be accepted; they have IRRs greater than the cost of capital

D: Project A; it has the higher positive NPV

E: Not enough information to answer.

Question 2:

Given the following cash flows for a two mutually exclusive projects (A&B) and assuming 16% cost of capital;

year Project A Project B
0 -5000 -1000
1 2500 600
2 2500 600
3 2500 600

2) At what rate would you be indifferent between those two mutually exclusive projects?

A: 20.04%

B: 23.38%

C: 1.35%

D: 1.12%

E: 36.31%

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