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Project C and project D are mutually exclusive projects with conventional cashflows. The net present values (NPV) of the projects are calculated at the cost

Project C and project D are mutually exclusive projects with conventional cashflows. The net present values (NPV) of the projects are calculated at the cost of capital of 10% and 15% and provided below.

Cost of capital

NPV (Project C)

NPV (Project D)

10%

$109,366

$120,756

15%

$57,709

$50,837

Project C has an internal rate of return (IRR) of 22%. Project D has an internal rate of return (IRR) of 19%.

Three companies are interested in investing in the projects. The cost of capital of each company is given below:

Company

Cost of capital

Red

8%

Green

12%

Blue

17%

Provide your advice to each of the companies.

Company Red Should:

Company Green Should:

Company Blue Should:

Accept Project C only

Accept Project D only

Accept Both Projects

Accept Neither Projects

Require more information for decision-making

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