Question

In: Finance

. Robin Hood Industries is considering two mutually exclusive projects with the following projected cash flows:...

. Robin Hood Industries is considering two mutually exclusive projects with the following projected cash flows:

Project A

Project B

Initial Investment

-R635 000,00

-R1 300 000,00

Annual Cash flows

Year 1

R120 000,00

R344 000,00

Year 2

R200 000,00

R300 000,00

Year 3

R90 000,00

R200 000,00

Year 4

R200 000,00

R200 000,00

Year 5

R120 000,00

R200 000,00

Year 6

R180 000,00

R300 000,00

Year 7

R180 000,00

R400 000,00

Year 8

R90 000,00

R550 000,00

Based on the above cash flows and a cost of capital (discount rate) of 10%, which of the following statements is the most accurate:

(a) If the company uses IRR only in evaluating projects, project B would be selected.

(b) Project A would be selected if the company uses IRR and payback period for the evaluation of projects.

(c) Project B would be selected if the company uses NPV and IRR for the evaluation of projects.

(d) Project A would be selected if the company uses NPV for the evaluation of projects.

(e) None of the above

Solutions

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