Question
The AMF Company is considering three independent investment opportunities. The cost of capital for projects A, B, and C is 20%. The following measures have
The AMF Company is considering three independent investment opportunities. The cost of capital for projects A, B, and C is 20%. The following measures have been established for the projects:
Project A: Payback Period 6 years, NPV @ 20% $500, IRR 22% Project B: Payback Period 4 years, NPV @ 20% $400, IRR 25% Project C: Payback Period 3 years, NPV @ 20% -$115, IRR 18%
In order to help maximize its market value, which project(s) should the AMF Company select?
A.) A and B because both projects have positive NPVs.
B.) B because its NPV at 20% is the highest.
C.) A because its IRR is the highest.
D.) C because its payback period is the lowest.
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