A firm is evaluating two independent projects utilizing the internal rate of ret

Question

A firm is evaluating two independent projects utilizing the internal rate of return technique. Project X has an initial investment of $80,000 and cash inflows at the end of each of the next five years of $25,000. Project Z has a initial investment of $120,000 and cash inflows at the end of each of the next four years of $40,000.

The firm should

A) accept both if the cost of capital is at most 15 percent.

B) accept only Z if the cost of capital is at most 15 percent.

C) accept only X if the cost of capital is at most 15 percent.

D) none of the above

Explanation / Answer

A: C) accept only X if the cost of capital is at most 15 percent. Because X has an IRR of 17% whereas Z has 13%

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