Question

You have been given the responsibility of deciding between 2 projects. Your company cannot do both of them. The projects both have 4-year lives, no residual value and generate cash flows as per the following table. The cost of capital is 8%.

0

1

2

3

4

Project A

($50,000)

$25,000

$20,000

$5,000

$39,000

Project B

($40,000)

$10,000

$30,000

$22,000

$7,000

Which of the following statements is true?a) A has a better NPV, IRR and PBPb) A has a better IRR, a better NPV, but the PBP is longerc) B has a better NPVd) B has a better NPV, IRR and PBPe) B has a better IRR, a better PBP, but the NPV isn’t quite as good

Answer 1