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.
We choose Project B, because it has a higher IRR. This is ...
The solution provides a detailed and step-by-step explanation for the problem in an attached Excel file.