Two Mutually Exclusive Projects Have the Following Expected Cash Flows

question 16

Multiple Choice

Two mutually exclusive projects have the following expected cash flows, net present values, and internal rates of return: If the appropriate discount rate is 15%, which project should be undertaken and why?

• A)Project B since its initial investment is returned in the first year and can then be invested in another project
• B)Project B since its IRR is higher than that of Project A
• C)Project A since it has the higher net present value of the two projects
• D)Project B since its total cash inflows are more than twice the cost of the project, whereas Project A's cash inflows are just twice the initial investment.

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