10. Consider the following two projects with cash flows in $: Year 0 Year 1 Year 2 Project Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Year 3 Year 4 Discount Rate A -100 40 50 60 N/A 15% -73 30 30 30 30 15% Assume that projects A and B are mutually exclusive. The correct investment decision and the best rationale for that decision is to: A) invest in project A since NPV B IRR A. C) invest in project B since NPV B > NPV A. D) invest in project A since NPV A > 0.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
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10. Consider the following two projects with cash flows in $:
Year 0
Year 1
Discount
Year 2
Project Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow
Year 3
Year 4
Rate
A
-100
40
50
60
N/A
15%
-73
30
30
30
30
15%
Assume that projects A and B are mutually exclusive. The correct investment decision and
the best rationale for that decision is to:
A) invest in project A since NPV B<NPV A.
B) invest in project B since IRR B> IRR A.
C) invest in project B since NPV B > NPV A.
D) invest in project A since NPV A> 0.
Transcribed Image Text:10. Consider the following two projects with cash flows in $: Year 0 Year 1 Discount Year 2 Project Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Year 3 Year 4 Rate A -100 40 50 60 N/A 15% -73 30 30 30 30 15% Assume that projects A and B are mutually exclusive. The correct investment decision and the best rationale for that decision is to: A) invest in project A since NPV B<NPV A. B) invest in project B since IRR B> IRR A. C) invest in project B since NPV B > NPV A. D) invest in project A since NPV A> 0.
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