Assume the projects are mutually exclusive, that they have equal lives and equal

Question

Assume the projects are mutually exclusive, that they have equal lives and equal risk, and that the firm does not face financial (or other) constraints. Assume also that the appropriate cost of capital is 10%.
A B
IRR 18% 27%
NPV @ 10% $1,665 $1,601

Payback 7 years 4 years

Profitability Index 1.67 2.00

The IRR reinvestment rate assumption is
a. Always unrealistic
b. More realistic for project B than for project A
c. More realistic for project A than for project B
d. More realistic than the NPV re-investment rate assumption for both projects.

Explanation / Answer

b. More realistic for project B than for project A

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