Question
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
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 than the cost of capital | ||
D: Project A; it has the higher positive NPV | ||
E: Not enough information to answer. |
Question 2:
Given the following cash flows for a two mutually exclusive projects (A&B) and assuming 16% cost of capital;
year | Project A | Project B |
0 | -5000 | -1000 |
1 | 2500 | 600 |
2 | 2500 | 600 |
3 | 2500 | 600 |
2) At what rate would you be indifferent between those two mutually exclusive projects?
A: 20.04% | ||
B: 23.38% | ||
C: 1.35% | ||
D: 1.12% | ||
E: 36.31% |
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