Two Projects Being Considered Are Mutually Exclusive and Have the Following

question 74

Multiple Choice

Two projects being considered are mutually exclusive and have the following projected cash flows: $$\begin{array} { | c | c | c | } \hline \text { Year } & \text { Project A } & \text { Project B } \\\hline 0 & - \$ 50,000 & - \$ 50,000 \\\hline 1 & \$ 15,625 & 0 \\\hline 2 & \$ 15,625 & 0 \\\hline 3 & \$ 15,625 & 0 \\\hline 4 & \$ 15,625 & 0 \\\hline 5 & \$ 15,625 & \$ 99,500 \\\hline\end{array}$$ If the required rate of return on these projects is 10%, which would be chosen and why?

• A)B, because of higher NPV.
• B)B, because of higher IRR.
• C)A, because of higher NPV.
• D)A, because of higher IRR.
• E)Neither, because both have IRRs less than the cost of capital.

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Definitions:

Managerial Decisions

Choices made by managers or executives within organizations that influence direction, operations, and outcomes, based on analysis and judgement.

Management Authority

pertains to the powers and responsibilities vested in managers to make decisions, direct operations, and enforce policies within an organization.

Unilateral Control

A management approach where decisions are made by one person or entity without consultation or agreement from others involved.

Market Competition

The rivalry among companies selling similar products and services with the goal of achieving revenue, profit, and market share growth.