Question: Your company is considering two mutually exclusive projects, A and B, whose costs and cash flows are shown below. Project A is of average risk
Your company is considering two mutually exclusive projects, A and B, whose costs and cash flows are shown below. Project A is of average risk while project B is of higher risk. Projects of average risk are analyzed using the WACC as below indicated. Projects of higher risk are analyzed using a 3% risk premium above the WACC. Choose the correct recommendation. a. While both projects' IRRs are above their respective IRR thresholds, since the NPV and the IRR of project B are both higher than the NPV and the IRR of project A, project B is recommended. b. While both projects' IRRs are above their respective IRR thresholds, since the NPV and the IRR of project A are both higher than the NPV and the IRR of project B, project A is recommended. c. The two projects have about the same NPV, but since the IRR of project B is materially higher than the IRR of project A, project B is recommended. d. The two projects have about the same NPV, but since the IRR of projectA is materially higher than the IRR of project B, project A is recommended
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