Question

Two projects being considered are mutually exclusive and have the following cash flows: Year Project A...

Two projects being considered are mutually exclusive and have the following cash flows:

Year

Project A

Project B

0

−$50,000

−$50,000

1

15,625

0

2

15,625

0

3

15,625

0

4

15,625

0

5

1,562

89,500

If the required rate of return on these projects is 13 percent, which would be chosen and why?

a.

Project B because of higher NPV.
b.

Project B because of higher IRR.
c.

Project A because of higher NPV.
d.

Project A because of higher IRR.
e.

Neither, because the cost of capital is too high.
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