Question

11) Your company is choosing between two MUTUALLY EXCLUSIVE projects that have a required rate of return of 8.25%. You have gathered the following data. Which of the project(s) should be accepted?

IRR | NPV | |

Project A | 6.40% | $ 22.6 million |

Project B | 8.50% | $ 16.1 million |

A) Accept neither project, as both have a required return that is above the IRR.

B) Accept project B with the higher IRR.

C) Accept project A with the higher NPV.

D) Accept both projects, as both have a positive NPV.

E) Accept both projects, as both have a positive NPV and an IRR greater than the required return.

Answer #1

Ans. B. Accept Project B with the higer IRR

Now lets understand both the projects.

The IRR of the project is 6.40% which is lower than the required rate of return of 8.25% so in that terms it should not be taken but we see that the NPV of the project is $ 22.6 million which is higher than the $16.1 million of Project B but here NPV might be greater but the returns against the investment in percentage terms would not be higher so we would be better off to invest in Project B which has a higher IRR than the required rate of return of 8.25%.

You are trying to determine which of two mutually exclusive
projects to undertake. Both projects have the same initial outlay.
Project Adam has an NPV of $4,392.15, an IRR of 11.33%, and an EAA
of $1,158.64. Project Eve has an NPV of $5,833.73, an IRR of 9.88%,
and an EAA of $1,093.50. The cost of capital for both projects is
9%, the projects have different lives, and the projects are not
repeatable. What should you do?
You should do Project...

Question text
Which of the following statements is INCORRECT?
Select one:
a. When choosing between mutually exclusive projects, managers
should accept all projects with IRRs greater than the weighted
average cost of capital.
b. For independent projects, the decision to accept or reject
will always be the same using either the MIRR method or the NPV
method.
c. One of the disadvantages of choosing between mutually
exclusive projects on the basis of discounted payback method is
that you might choose...

Suppose your firm is considering two mutually exclusive,
required projects with the cash flows shown below. The required
rate of return on projects of both of their risk class is 8
percent, and that the maximum allowable payback and discounted
payback statistic for the projects are 2 and 3 years,
respectively.
Time:
0
1
2
3
Project A Cash Flow
-30,000
20,000
40,000
11,000
Project B Cash Flow
-40,000
20,000
30,000
60,000
Use the NPV decision rule to evaluate these...

Suppose your firm is considering two mutually exclusive,
required projects with the cash flows shown below. The required
rate of return on projects of both of their risk class is 9
percent, and that the maximum allowable payback and discounted
payback statistic for the projects are 2 and 3 years,
respectively.
Time:
0
1
2
3
Project A Cash Flow
-21,000
11,000
31,000
2,000
Project B Cash Flow
-31,000
11,000
21,000
51,000
Use the NPV decision rule to evaluate these...

1.
Suppose your firm is considering two mutually exclusive, required
projects with the cash flows shown as follows. The required rate of
return on projects of both of their risk class is 10 percent, and
the maximum allowable payback and discounted payback statistic for
the projects are two and a half and three and a half years,
respectively.
Time
0
1
2
3
Project A Cash Flow
?1,000
300
400
700
Project B Cash Flow
?500
200
400
300
Use...

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...

Consider the following cash flows for two mutually exclusive
capital investment projects. The required rate of return is 16%.
Use this information for the next 3 questions. Year Project A Cash
Flow Project B Cash Flow 0 ($50,000) ($20,000) 1 15,000 6,000 2
15,000 6,000 3 15,000 6,000 4 13,500 5,400 5 13,500 5,400 6 6,750
5,400
Which of the following statements is true concerning projects A
and B?
a) Due to time disparity, IRR indicates that project A should...

Bausch Company is presented with the following two
mutually exclusive projects. The required return for both projects
is 19 percent.
Year
Project M
Project N
0
-$140,000
-$355,000
1
$63,500
$152,500
2
$81,500
$180,000
3
$72,500
$137,500
4
$58,500
$110,000
What is the IRR for each project?
What is the NPV for each project?
Which,if either, of the projects should the company accept?

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...

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...

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