Question: Suppose your boss has asked you to analyze two mutually exclusive projects-project A and project B. Both projects require the same investment amount, and the
Suppose your boss has asked you to analyze two mutually exclusive projects-project A and project B. Both projects require the same investment amount, and the sum of cash wlows of Project is larger than the sum of cash inflows of project B. A coworker told you that you don't need to do an NPV analysis of the projects because you already know that project will have a larger NPV than project B. Do you agree with your coworker's statement? O No, the calculation is based on percentage retums, so the size of a project's cash flows does not affect a project's NP O Yes, project Awilways have the largest NPV, because its cash inflows are greater than projects cash inflows. O No, the NPV calculation we take into account not only the projects cash wlows but alio the timing of cash flows and outlows Consequently, project could have a larger NPV the project A, even though project has larger cash flows
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
