Question
You are considering the following two projects and can take only one. Your cost of capital is 11.5%. The cash flows for the two projects
You are considering the following two projects and can take only one. Your cost of capital is
11.5%. The cash flows for the two projects are as follows ($ million):
Project Year 0 Year 1 Year 2 Year 3 Year 4 A -100 24 30 41 50 B -100 50 41 30 22
.
a. What is the IRR of each project? ( in % Round to one decimal place.)
b. What is the NPV of each project at your cost of capital? (in millions and round to two decimal places.)
c. At what cost of capital are you indifferent between the two projects?( in % Round to one decimal place.)
d. What should you do?
Given your cost of capital, which project would you choose?(Select the best choice below.)
A. You should invest in project B, as it has the higher NPV.
B.You should invest in project A,as it has the higherIRR.
C.You should invest in project B,as it has the higherIRR.
D.You should invest in project A, as it has the higherNPV.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started