You are considering two independent projects with the following cash flows. The

Question

You are considering two independent projects with the following cash flows. The required return for both projects is 10%. Given this information, which one of the following statements is correct?

Year Project A Project B

0 -$950,000 -$125,000

1 $330,000 $55,000

2 $400,000 $50,000

3 $450,000 $50,000

A.You should accept project B since it has the higher IRR and reject project A because you can not accept both projects.

B.You should accept project A because it has the lower NPV and reject project B

c.. You should accept project A because it has the higher NPV and you can not accept both projects.

d.You should accept project B because it has the higher IRR and reject project A.

e.You should accept both projects if the funds are available to do so since both NPV's are > 0.

Explanation / Answer

The correct option is e. You should accept both projects if the funds are available to do so since both NPV s are> 0

It is mentioned in the question that the projects are two independent projects. Independent projects are those which do not compete with one another. All the proposals which yield a rate of return higher than the minimum required rate of return or the cost of capital are accepted.

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