Two Projects Being Considered by a Firm Are Mutually Exclusive

question 19

Multiple Choice

Two projects being considered by a firm are mutually exclusive and have the following projected cash flows: $$\begin{array} { | c | c | c | } \hline \text { Year } & \text { Project A } & \text { Project B } \\\hline 0 & - \$ 100,000 & - \$ 100,000 \\\hline 1 & \$ 39,500 & 0 \\\hline 2 & \$ 39,500 & 0 \\\hline 3 & \$ 39,500 & \$ 133,000 \\\hline\end{array}$$ Which project(s) should be accepted?

• A)A, because it has a shorter payback period.
• B)B, because it has a higher IRR.
• C)Indifferent, because the projects have equal IRRs.
• D)Include both in the capital budget, since the sum of the cash inflows exceeds the initial investment in both cases.
• E)Choose neither, since their NPVs are negative.

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