Question

The prevailing interest rate is 8%. If the following three projects are mutually exclusive, which one should you take? Use NPV, IRR and Profitability Index to make your decision. Do all three rules agree?

Project	Year 0	Year 1	Year 2
A	-100	+70	+70
B	-240	+120	+140
C	-370	+50	+400

Select one:

a. Yes they agree. Project C dominates the other two. These are there calculations

Project	NPV	IRR	PI
A	$      24.83	25.69%	1.25
B	$      (8.86)	5.36%	0.96
C	$      39.23	14.29%	1.11

b. No they don't agree. Every project leads based on one of the three measures.

Project	NPV	IRR	PI
A	$      24.83	25.69%	1.11
B	$      (8.86)	5.36%	0.96
C	$      39.23	14.29%	1.25

c. Yes they agree. Project A dominates the other two. These are there calculations

Project	NPV	IRR	PI
A	$      24.83	25.69%	1.25
B	$      (8.86)	5.36%	0.96
C	$      19.23	10.95%	1.05

d. No, they don't agree. NPV is better for project C, but IRR and PI are better for project A.

Project	NPV	IRR	PI
A	$      24.83	25.69%	1.25
B	$      (8.86)	5.36%	0.96
C	$      39.23	14.29%	1.11

Answer 1