Question

Project A has a net present value of $1,500, a payback period of 2 years, and...

Project A has a net present value of $1,500, a payback period of 2 years, and an internal rate of return of 12%.  Project B has a net present value of $1,800, a payback period of 4 years, and an internal rate of return of 10%.  Project C has a netpresent value of $1,750, a payback period of 3 years, and an internal rate of return of 11%.  If the projects are mutually exclusive, which project should be undertaken?

A.

Project A because it has a higher IRR than the other two projects and pays back in the shortest period of time.
B.

Project C because it has an NPV that is only slightly less than that of Project B and offers a higher IRR and a shorter payback period than Project B.
C.

Project B and Project C are equally acceptable since each would increase firm value by the same amount.
D.

Project B because it has the highest NPV of the three projects.
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer: -

Project with Lowest PAYBACK PERIOD and Highest IRR should be always a choice of an investor.

Project-A: NPV: $1500, Payback: 2 years, IRR: 12%

Project-B: NPV $1800, Payback: 4 years, IRR: 10%

Project-C: NPV-$1750, Payback: 3 years, IRR: 11%

All Projects are Mutually Exclusive.

Option-B, Option-C and Option-D are not correct as they are comparing Project B and Project C and nothing about Project-A which is an eligible project among three.

Hence, from given option Option-A is correct as it has highest IRR and other 2 projects and payback in shortest period of time.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
11. The discount rate that makes the net present value of an investment exactly equal to...
11. The discount rate that makes the net present value of an investment exactly equal to zero is the: A) Payback period. B) Internal rate of return. C) Average accounting return. D) Profitability index. E) Discounted payback period. 12. The internal rate of return (IRR) rule can be best stated as: A) An investment is acceptable if its IRR is exactly equal to its net present value (NPV). B) An investment is acceptable if its IRR is exactly equal to...
Project A has an internal rate of return (IRR) of 15 percent. Project B has an...
Project A has an internal rate of return (IRR) of 15 percent. Project B has an IRR of 14 percent. Both projects have a required return of 12 percent. Which of the following statements is most correct? a. Both projects have a positive net present value (NPV). b. Project A must have a higher NPV than project B. c. If the required return were less than 12 percent, Project B would have a higher IRR than Project A. d. Project...
1(a). (TRUE or FALSE?) Whenever there is a ranking conflict between net present value and internal...
1(a). (TRUE or FALSE?) Whenever there is a ranking conflict between net present value and internal rate of return we generally suggest that the project with the highest net present value be chosen. 1(b). (TRUE or FALSE?) The acceptable independent projects can be ranked by using the IRR methodology, from lowest to the highest IRR. 1(c). (TRUE or FALSE?) When evaluating proposed projects with the IRR method, those projects with IRRs that are less than the required rate of return...
When evaluating potential projects, the firm has a required payback period of 3 years and a...
When evaluating potential projects, the firm has a required payback period of 3 years and a required rate of return of 10%. The project you are analyzing has a payback period of 2.1 years, an internal rate of return of 14% and a NPV of -$840. Should this project be accepted? Show the details calculations.
Your firm is considering a project that has an NPV of $32,600, an IRR of 9.5...
Your firm is considering a project that has an NPV of $32,600, an IRR of 9.5 percent, and a payback period of 8.9 years. The required return is 9% and the required payback period is 9 years. Which one of the following statements correctly applies to this project? A) The net present value indicates accept while the internal rate of return indicates reject. B) The payback decision rule is sufficient in making the decision about the project. C) The payback...
Which of the following statements is correct: A. projects with unconventional cash flows have multiple internal...
Which of the following statements is correct: A. projects with unconventional cash flows have multiple internal rates of return B. if 2 projects are mutually exclusive, you should select the project with the shortest payback period C. If the IRR exceeds the required return, the profitability index will be less than 1.0 D. the Profitability index will be greater than 1.0 when the net present value is negative E. when the internal rate of return is greater than the required...
How does the use of payback period, net present value, and internal rate of return for...
How does the use of payback period, net present value, and internal rate of return for capital budgeting projects connect directly with a firm’s strategic goals? What factors in the political, business, and economic climate or environment have a direct correlation to capital budgeting projects? What potential short-term and long-term impact on capital budgeting projects might these factors have?
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal rate of return. MIRR = modified internal rate of return. PI = profitability index. Project A Project B Project C Project D Project E Project F Project G NPV= $4,711 ($711) ($657) $334 $9,842 $7,360 ($3,224) IRR= 44.51% 5.47% 8.06% 12.98% 22.56% 17.19% 5.47% MIRR= 25.23% 7.50% 8.97% 11.57% 16.26% 13.70% 7.50% PI= 2.178 0.822 0.945 1.028 1.394 1.294 0.871 The discounting rate (r)...
17- Project L has a cost of ?$81,000. Its expected net cash inflows are ?$90,000 per...
17- Project L has a cost of ?$81,000. Its expected net cash inflows are ?$90,000 per year for 8 years. What is the? project's payback? period? If the cost of capital is 9?%, what are the? project's net present value? (NPV) ? and what is the profitability index? (PI)? What is the? project's internal rate of return? (IRR)?
When using the Net Present Value method, A project is acceptable if the present value of...
When using the Net Present Value method, A project is acceptable if the present value of benefits equals the present value of outflows. A project is acceptable if the present value of benefits exceeds a specified minimum value. None of the answers provided is correct A project is acceptable if the required rate of return on the project is equal to the cost of the firm’s capital. Projects with positive net present values increase the value of the firm.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT