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The following information is available for two projects. Only one project can be undertaken.
Project A Project B
Internal rate of return (IRR) 16% 17%
Discounted payback period 3.6 years 4.1 years
Net present value (NPV) $18,300 $16,900Which TWO of the following statements are true?
A. At a cost of capital of 17% project B would have a zero NPV
B. Ranking the projects based on discounted payback period would make project B seem
more favorable
C. Project A should be accepted because it has the higher NPV D. Project B should be accepted because it has the higher IRRhere in this question I guess the answer A and C however it is given A and D.
I am hoping some help from your side.Assuming you have typed out the question in full, then the correct answer is A and C (and not A and D).
Yes I have typed all the question
But answer was given A and D.And yes NPV is the supreme one right ?
could you please tell me in which condition we go for IRR instead of NPV ???Unless there was more given in the question than you have typed out, then the given answer is wrong!
The only time that you would choose the one with the highest IRR would be if the returns from the project could then be invested again at the IRR (so that you would effectively be getting the IRR for ever). However this is not relevant until Paper FM, and even then is of minor importance.
It means NPV is supreme at our level right?
we do not need to care about IRR if both NPV and IRR are given…
am I correct ??NPV is supreme in the sense that we select the project with the higher NPV.
We do care about the IRR if we are not certain about the cost of money, but again this is more relevant for Paper PM than for Paper MA.
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