Question
. Robin Hood Industries is considering two mutually exclusive projects with the following projected cash flows: Project A Project B Initial Investment -R635 000,00 -R1
. Robin Hood Industries is considering two mutually exclusive projects with the following projected cash flows:
|
| Project A | Project B |
| Initial Investment | -R635 000,00 | -R1 300 000,00 |
| Annual Cash flows |
|
|
| Year 1 | R120 000,00 | R344 000,00 |
| Year 2 | R200 000,00 | R300 000,00 |
| Year 3 | R90 000,00 | R200 000,00 |
| Year 4 | R200 000,00 | R200 000,00 |
| Year 5 | R120 000,00 | R200 000,00 |
| Year 6 | R180 000,00 | R300 000,00 |
| Year 7 | R180 000,00 | R400 000,00 |
| Year 8 | R90 000,00 | R550 000,00 |
Based on the above cash flows and a cost of capital (discount rate) of 10%, which of the following statements is the most accurate:
(a) If the company uses IRR only in evaluating projects, project B would be selected.
(b) Project A would be selected if the company uses IRR and payback period for the evaluation of projects.
(c) Project B would be selected if the company uses NPV and IRR for the evaluation of projects.
(d) Project A would be selected if the company uses NPV for the evaluation of projects.
(e) None of the above
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Essentials Of Corporate Finance
Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan
9th International Edition
1259254801, 9781259254802
