Reference no: EM133004926
Consider two mutually exclusive projects.
Project A requires you to pay $500 today, and it will pay you $180 at the end of each of the next 4 years (t = 1, 2, 3, and 4).
Project B pays you $550 today, and requires that you pay out $210 at the end of each of the next 4 years (t = 1, 2, 3, and 4).
The cost of capital is 10%
Which statement is correct?
The NPV rule recommends accepting A, the IRR method recommends accepting B, and the firm should accept project B.
The NPV rule recommends accepting A, the IRR method recommends accepting B but the IRR is an invalid method for project B, and the firm should accept project A.
The NPV rule recommends accepting B, the IRR method recommends accepting A, and because the IRR is a superior method the firm should accept project A.
The NPV rule recommends accepting B, the IRR method recommends accepting A but the IRR is an invalid method for project A, and the firm should accept project B.
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