Consider two mutually exclusive projects. Project A has a total life of 3 years with a...
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Consider two mutually exclusive projects. Project A has a total life of 3 years with a cost of capital of 12%. Project B has a total life of 3 years with a cost of capital of 15%. The expected cash flows of the projects are: Year 0 1 2 3 3 Project A -$3,000 -$2,000 $4,000 $5,000 Project B -$800 -$700 $3,000 $1,500 An expert has concluded that "Given that these are mutually exclusive projects project B should be undertaken because it has a higher IRR than project A". Do you agree with this decision? If so, why; if not, why not? Consider two mutually exclusive projects. Project A has a total life of 3 years with a cost of capital of 12%. Project B has a total life of 3 years with a cost of capital of 15%. The expected cash flows of the projects are: Year 0 1 2 3 3 Project A -$3,000 -$2,000 $4,000 $5,000 Project B -$800 -$700 $3,000 $1,500 An expert has concluded that "Given that these are mutually exclusive projects project B should be undertaken because it has a higher IRR than project A". Do you agree with this decision? If so, why; if not, why not?
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Answer rating: 100% (QA)
To determine whether the decision to undertake Project B based on its higher internal rate of return IRR is valid we need to compare the IRRs net pres... View the full answer
Related Book For
Corporate Finance Core Principles and Applications
ISBN: 978-0077905200
3rd edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford
Posted Date:
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