A Company Is Considering Two Mutually Exclusive Projects, a and B

question 96

Multiple Choice

A company is considering two mutually exclusive projects, A and B Project A requires an initial investment of $100, followed by cash flows of $95, $20, and $5. Project B requires an initial investment of $100, followed by cash flows of $0, $20, and $130. What is the IRR of the project that is best for the company's shareholders? The firm's cost of capital is 10 percent.

• A)15.24 percent
• B)15.96 percent
• C)16.17 percent
• D)15.42 percent

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Definitions:

Financial Assets

Resources owned by individuals or businesses that have monetary value and can be converted into cash.

Formal Structures

The officially designated arrangement of roles, responsibilities, communication, and hierarchy within an organization.

Product Departmentalization

The organization of jobs in relation to the products of the firm.