Project a Has a Net Present Value of $1,500, a Payback

question 5

Multiple Choice

Project A has a net present value of $1,500, a payback period of 2 years, and an internal rate of return of 12%. Project B has a net present value of $1,800, a payback period of 4 years, and an
Internal rate of return of 10%. Project C has a net present value of $1,750, a payback period of 3
Years, and an internal rate of return of 11%. If the projects are mutually exclusive, which
Project should be undertaken?

• A)Project B and Project C are equally acceptable since each would increase firm value by the same amount.
• B)Project C because it has an NPV that is only slightly less than that of Project B and offers a higher IRR and a shorter payback period than Project B.
• C)Project A because it has a higher IRR than the other two projects and pays back in the shortest period of time.
• D)Project B because it has the highest NPV of the three projects.

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