Question

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%

Answer 1

Cal: