Question

Given the two mutually exclusive projects (and their information) below, which project should be accepted?

Project A: NPV = $500, IRR = 12%
Project B: NPV = $100, IRR = 18%

a) Project A
b) Project B
c) Both projects
d) Neither project

Answer 1

To determine which project to accept, compare the NPV and IRR of each project. The project with the higher NPV should be accepted. In this case, Project A has a higher NPV than Project B.

Step-by-step explanation:

The question asks which project, Project A or Project B, should be accepted. To determine this, we need to consider the NPV and IRR of each project. NPV stands for Net Present Value and represents the difference between the present value of cash inflows and the present value of cash outflows. IRR stands for Internal Rate of Return and represents the rate at which a project generates returns.

Project A has an NPV of $500 and an IRR of 12%. Project B has an NPV of $100 and an IRR of 18%. The project with the higher NPV is generally preferred, as it indicates a higher value for the project. In this case, Project A has a higher NPV than Project B, so Project A should be accepted.

Therefore, the correct answer is Project A.