Explore BrainMass

Explore BrainMass

    Cash Flow, NPV, IRR, Payback

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

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

    Project A Project B
    Year Cash Flow Cash Flow
    0 ($100,000) ($100,000)
    1 39,500 0
    2 39,500 0
    3 39,500 133,000

    Based only on the information given, which of the two projects would be preferred, and why?

    a. Project A, because it has a shorter payback period.
    b. Project B, because it has a higher IRR.
    c. Indifferent, because the projects have equal IRRs.
    d. Include both in the capital budget, since the sum of the cash inflows exceeds the initial investment in both cases.
    e. Choose neither, since their NPVs are negative.

    © BrainMass Inc. brainmass.com June 3, 2020, 10:11 pm ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/cash-flow-npv-irr-payback-219843

    Solution Summary

    The solution answers the question below and goes into some detail as well. The solution is ideal for students who are looking for a short answer to the question.

    $2.19

    ADVERTISEMENT