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Mutually Exclusive Projects

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Two projects being considered are mutually exclusive and have the following projected cash flows:.

Year Project A Cash Flow Project B Cash Flow
0 -$50,000 -$50,000
1 15,625 0
2 15,625 0
3 15,625 0
4 15,625 0
5 15,625 99,500

If the required rate of return on these projects is 10 percent, which would be chosen and why?

Choices for answers:

Project B because it has the higher NPV.

Project B because it has the higher IRR.

Project A because it has the higher NPV.

Project A because it has the higher IRR.

Neither, because both have IRRs less than the cost of capital.

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Solution Summary

The solution explains how to choose between mutually exclusive projects.

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Please see the attached file. We get
Project A Project B
IRR 17% 14.8%
NPV 9,231.04 11,781.67

In thise case, we can choose ...

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