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

question 74

Multiple Choice

A company is considering two mutually exclusive projects, A and B Project A requires an initial investment of $200, followed by cash flows of $185, $40, and $15. Project B requires an initial investment of $200, followed by cash flows of $0, $50, and $230. 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)15.45 percent
• B)15.12 percent
• C)13.57 percent
• D)12.71 percent

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Definitions:

Bad Debts

Money owed to a company that is unlikely to be paid by the debtor, often resulting in a write-off for the company.

Just-In-Time

An inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs.

Inventory Systems

are methodologies and procedures used by businesses to track, manage, and plan for current and future inventory and stock levels.

Working Capital Accounts

Accounts related to the short-term financial operations of a business, such as cash, inventory, and accounts payable and receivable.