Two Projects are being considered by a firm are mutually exclusive and have the following projected cash flows:
Year Project A Cash Flow Project B Cash Flow
0 -$100,000 -$100,000
1 $39,500 0
2 $39,500 0
3 $39,500 $133,000
Based 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 both projects have equal IRR
D) Include both in the capital budget, since the sum of the cash flows exceeds the initial investment in both cases
E)Choose neither because their NPVs are negative.
we choose (B)Project B, because it has a higher IRR.