Question
A company has the option to invest in project A, project B, or neither (the projects are mutually exclusive and the company has no other
A company has the option to invest in project A, project B, or neither (the projects are mutually exclusive and the company has no other investment options).
Project A requires an initial investment of $100,000 today and provides cash flows of $30,000 a year for five years.
Project B requires a $875,000 investment today and will have cash flows of $200,000 a year for 4 years, with a final cashflow of $300,000 in year 5.
The firms hurdle rate (discount rate) for these projects is 8%. The IRR of project A is:
Group of answer choices
(a) below 8%
(b) exactly 8%
(c) above 8%
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