You must decide between two mutually exclusive projects. Project A has cash flows of -
Rs.10,000; Rs.5,000; Rs.5,000; and Rs.5,000; for years 0 through 3, respectively. Project
B has cash flows of -Rs.20,000; Rs.10,000; Rs.10,000; and Rs.10,000; for years 0 through
3, respectively. The firm has decided to assume that the appropriate cost of capital is 10%
for both projects. Which project should be chosen? Why?
A. A; Project A's NPV > Project B's NPV.
B. A or B; Makes no difference which you choose because the IRR for A is identica l
to the IRR for B and both IRRs are greater than 10 percent, the cost of capital.
C. B; Project B's NPV > Project A's NPV.
D. Neither A nor B; The NPVs of both projects are negative.
Rs.10,000; Rs.5,000; Rs.5,000; and Rs.5,000; for years 0 through 3, respectively. Project
B has cash flows of -Rs.20,000; Rs.10,000; Rs.10,000; and Rs.10,000; for years 0 through
3, respectively. The firm has decided to assume that the appropriate cost of capital is 10%
for both projects. Which project should be chosen? Why?
A. A; Project A's NPV > Project B's NPV.
B. A or B; Makes no difference which you choose because the IRR for A is identica l
to the IRR for B and both IRRs are greater than 10 percent, the cost of capital.
C. B; Project B's NPV > Project A's NPV.
D. Neither A nor B; The NPVs of both projects are negative.