Question: Q 8 . ( 1 2 points ) Consider two mutually exclusive projects. Project A has a total life of 3 years with a cost

8 . (12

points

)

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 Project A Project B

0 -

3, 000 -

800

1 -

2, 000 -

700

2

4, 000

3, 000

3

5, 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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