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?

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