QUESTION 16

XYZ Company is trying to decide between the following two independent capital budgeting projects.

Project #3

0 1 2 3 4

|---------------|--------------- |--------------- |---------------- |

-1000 575 625 750 1250

Project #4

0 1 2 3 4

|--------------- |---------------- |--------------- |---------------- |

-500 275 325 500 650

Using a required rate of return of WACC = 10%, the projects have the following NPV and IRR.

Project #3 NPV = $1,456.51 IRR = 58.36%

Project #4 NPV = $838.21 IRR = 62.79%

Which of the following statements is true of these two independent projects?

	A.	only Project #3 should be accepted because of its higher NPV.
	B.	only Project #3 should be accepted because of its higher IRR.
	C.	only Project #4 should be accepted because of its higher IRR.
	D.	only Project #4 should be accepted because of its higher NPV.
	E.	both projects should be accepted.