Two mutually exclusive projects have the following features: If the cost of finance to support the project

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Two mutually exclusive projects have the following features:

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If the cost of finance to support the project is 10 per cent p.a., which of these two projects should the business pursue (assuming no shortage of finance)?

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Business Finance

ISBN: 9781292134406

11th Edition

Authors: Eddie McLaney

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Question Posted: Mar 05, 2024 07:00 AM

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Two mutually exclusive projects have the following features: If the cost of finance to support the project

Question:

Year 0 1 2 NPV @ 10% IRR (approximately) Cash flows Project A (10,000) 6,000 6,000 413 13% Project B (6,000) 3,650 3,650 334 14%

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There is obviously a conflict here Both NPV and IRR are based on discounting cash flows Both Projects A and B have IRRs in excess of 10 percent yet th...View the full answer

Business Finance

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