Moving to another question wll save this response. uestion 8 points Save An Susa
ID: 2396581 • Letter: M
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Moving to another question wll save this response. uestion 8 points Save An Susan is evaluating two mutually exclusive capital projects. She determines that both are acceptable Based on this information, which of the tolowing stathments is ecc O Both proiects have net prosent values that greater than zero. O The projects' internal rates of return must be greater than the frm's roqíod rate of return. O Both projects should be purchased O If the firm purchases either project, the value of the firm is expected to increase Question B of 30 Moving to another question will save this response. MacBook Air 6 5 4 3 2Explanation / Answer
The answer would be the third option or Both projects should be purchased.
Mutually exclusive capital projects refers to a set of projects out of which we can select any one for making the investment.
How do we make decisions in Capital Budgeting
Net Present Value (NPV) can be defined as the Present value of cash inflows from a project - Initial Investment in the project. The Project with the highest net present value should be selected.
Internal Rate of Return (IRR) can be defined as the discount rate which will make the Net Present Value of a project 0. Therefore a project would only be selected if the IRR is greater than the rate of return provided by the project. Therefore the project with the highest IRR among the mutually exclusive project should be selected.
The most profitable project would definitely add to the value of the firm
Therefore as the defination of Mutually exclusive capital projects suggests that as we can select any one project to make our investment, we cannot make investment or purchase both the projects.
Hence Both projects should be purchased is the incorrect option
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