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You have two mutually exclusive projects with the cash flows as follows. Which statement is not correct? Year Project A Project B 0 -$50 -$100
You have two mutually exclusive projects with the cash flows as follows. Which statement is not correct?
Year | Project A | Project B |
0 | -$50 | -$100 |
1 | 20 | 20 |
2 | 10 | 50 |
3 | 15 | 10 |
4 | 20 | 20 |
5 | 35 | 80 |
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At 30% discount rate you will reject both projects.
As the discount rates goes up, the NPVs of both projects drop at an increasing rate.
Ignoring the time value of money, project B adds $30 more value than the project A.
The crossover rate is smaller than 20%.
If the discount rate is less than the crossover rate, you will choose project B.
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