Question

# A firm must choose between two mutually exclusive projects, A & B. Project A has an...

A firm must choose between two mutually exclusive projects, A & B. Project A has an initial cost of \$11000. Its projected net cash flows are \$900, \$2000, \$3000, \$4000, and \$5000 at the end of years 1 through 5, respectively. Project B has an initial cost of \$15000, and its projected net cash flows are \$7000, \$5000, \$3000, \$2000, and \$1000 at the end of years 1 through 5, respectively. If the firm’s cost of capital is 6.00%:

A. Project B should be chosen because it has the higher IRR

B. Project B should be chosen because it has the higher NPV

C. Project A should be chosen because it has the higher IRR

D. Project A should be chosen because it has the higher NPV

E. Both projects should be chosen because both have a positive NPV

If we have two mutually project wehave to choose one those project whose NPV is greater,
Project A should be accepted
IRR is to be calculated in excel by formula
=IRR(values,[guess])

NPV = Pv of inflow - outflow
PV of inflow is calculated on excel by formula-
=PV(rate,nper,pmt,fv)

Project A

 Year Cashflow Pv Of CF 0 -11000 -11000.00 1 900 849.06 2 2000 1779.99 3 3000 2518.86 4 4000 3168.37 5 5000 3736.29 NPV 1052.57 IRR 8.75%

Project- B

 Year Cashflow Pv Of CF 0 -15000 -15000.00 1 7000 6603.77 2 5000 4449.98 3 3000 2518.86 4 2000 1584.19 5 1000 747.26 NPV 904.06 IRR 9.05%

I hope this clear your doubt.

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