Author Question: Two projects being considered by a firm are mutually exclusive and have the following projected cash ... (Read 51 times)

kaid0807 · **on:** Apr 25, 2021

Question 1

The underlying cause of ranking conflicts between the NPV and IRR methods is differing
◦ initial cost.
◦ costs of capital.
◦ cash flow timing.
◦ profitability indices.
◦ errors in calculating the discount rate.

Question 2

Two projects being considered by a firm are mutually exclusive and have the following projected cash flows:

Year	Project A	Project B
0	-$100,000	-$100,000
1	$39,500	0
2	$39,500	0
3	$39,500	$133,000

Which project(s) should be accepted?
◦ A, because it has a shorter payback period.
◦ B, because it has a higher IRR.
◦ Indifferent, because the projects have equal IRRs.
◦ Include both in the capital budget, since the sum of the cash inflows exceeds the initial investment in both cases.
◦ Choose neither, since their NPVs are negative.

mammy1697 · **Reply #1 on:** Apr 25, 2021

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