Question

Two mutually exclusive projects have an initial cost of $60,000 each. Project A produces cash inflows of $30,000, $37,000, and $20,000 for Years 1 through 3, respectively. Project B produces cash inflows of $80,000 in Year 2 only. The required rate of return is 10 percent for Project A and 11 percent for Project B. Which project(s) should be accepted and why?

Project A, because it has the higher required rate of return.

Project A, because it has the larger NPV.

Project B, because it has the largest cash inflow in Year 2.

Project B, because it has the higher required rate of return

Project B, because it has the larger NPV

Answer #1

**The NPV is computed as shown below:**

**= Initial investment + Present value of future cash
flows**

**Present value is computed as follows:**

**= Future value / (1 +
r)**^{n}

**So, the NPV of Project A is computed as
follows:**

= - $ 60,000 + $ 30,000 / 1.10 + $ 37,000 / 1.10^{2} + $
20,000 / 1.10^{3}

**= $ 12,877.54 Approximately**

**The NPV of Project B is computed as
follows:**

= - $ 60,000 + $ 80,000 / 1.11^{2}

**= $ 4,929.79 Approximately**

**Whenever we compare two mutually exclusive projects, we
shall select the project which has a greater NPV. Hence the project
that shall be selected will be Project A.**

**So, the correct answer is Project A, because it has the
larger NPV.**

Feel free to ask in case of any query relating to this question

Two mutually exclusive projects have an initial cost of $12,000.
Project A produces cash inflows of $10,200, $8,700, and $3,500 for
years 1 through 3 respectively. Project B produces cash inflows of
$6,700, $3,500, and $12,600 for years 1 through 3 respectively. The
required rate is 10 percent. which project would you choose to
invest in and why?

Ace Inc. is evaluating two mutually exclusive projects—Project A
and Project B. The initial cash outflow is $50,000 for each
project. Project A results in cash inflows of $15,625 at the end of
each of the next five years. Project B results in one cash inflow
of $99,500 at the end of the fifth year. The required rate of
return of Ace Inc. is 10 percent. Ace Inc. should invest in:
a. Project B because it has no cash inflows...

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...

Project X and Project Y are two mutually exclusive projects.
Project X requires an initial outlay of $38,000 and generates a net
cash flow of $14,000 per year for six years. Project Y requires an
initial outlay of $52,000, and will generate cash flows of $15,300
per year for eight years. Which project should be chosen and why?
(Assume that the discount rate for both projects is 10
percent).
A. Project X because Project X has
a larger NPV than Project...

Bruin, Inc., has identified the following two mutually
exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
0
–$37,000
–$37,000
1
19,000
6,000
2
14,500
12,500
3
12,000
19,000
4
9,000
23,000
a. What is the IRR for Project A?
b. What is the IRR for Project B?
c. If the required return is 11 percent, what
is the NPV for Project A?
d. If...

Tara is evaluating two mutually exclusive capital
budgeting projects that have the following characteristics:
Cash Flows
Year
Project Q
Project R
0
$(4,000)
$(4,000)
1
0
3,500
2
5,000
2,100
IRR
11.8%
28.40%
If the firm's required rate of return (r) is 10 percent, which
project should be purchased?
a.
Both projects should be purchased, because the IRRs for both
projects exceed the firm's required rate of return.
b.
Neither project should be accepted, because their NPVs are too
small...

Tara is evaluating two mutually exclusive capital
budgeting projects that have the following characteristics:
Cash Flows
Year
Project Q
Project R
0
$(4,000)
$(4,000)
1
0
3,500
2
5,000
2,100
IRR
11.8%
28.40%
If the firm's required rate of return (r) is 10 percent, which
project should be purchased?
a.
Both projects should be purchased, because the IRRs for both
projects exceed the firm's required rate of return.
b.
Neither project should be accepted, because their NPVs are too
small...

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
8 percent, and the maximum allowable payback and discounted payback
statistic for the projects are two and three years,
respectively.
Time
0
1
2
3
Project A Cashflow
-20,000
10,000
30,000
1,000
Project B Cashflow
-30,000
10,000
20,000
50,000
Calculate the NPV and use the NPV decision rule to...

Two mutually exclusive projects each have a cost of $10,000. The
total, undiscounted cash flows from Project L are $15,000, while
the undiscounted cash flows from Project S total $13,000. Their NPV
profiles cross at a discount rate of 10 percent. Which of the
following statements best describes this situation? Please leave an
explanation. a. The NPV and IRR methods will select the
same project if the cost of capital is greater than 10 percent; for
example, 18 percent. b. The...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 3 minutes ago

asked 4 minutes ago

asked 7 minutes ago

asked 7 minutes ago

asked 7 minutes ago

asked 7 minutes ago

asked 11 minutes ago

asked 11 minutes ago

asked 14 minutes ago

asked 14 minutes ago

asked 14 minutes ago

asked 14 minutes ago