Share
Explore BrainMass

# Given mutually exclusive projects, select using NPV profile

IS THE BEST ANSWER FOR THIS A or B ?? thanks!

Cherry Books is considering two mutually exclusive projects. Project A has an internal rate of return of 18 percent, while Project B has an internal rate of return of 30 percent. The two projects have the same risk, the same cost of capital, and the timing of the cash flows is similar. Each has an up-front cost followed by a series of positive cash flows. One of the projects, however, is much larger than the other. If the cost of capital is 16 percent, the two projects have the same net present value (NPV); otherwise, their NPVs are different. Which of the following statements is most correct?
a. If the cost of capital is 12 percent, Project B will have a higher NPV.
b. If the cost of capital is 17 percent, Project B will have a higher NPV.
c. Project B is larger than Project A.
d. Statements a and c are correct.
e. Statements b and c are correct

#### Solution Preview

We need to make NPV profile. Since the NPV is the same at 16%, ...

#### Solution Summary

The solution explains how NPV profile can be used in the selection of mutually exclusive projects

\$2.19