Consider a company evaluating two mutually exclusive projects, Project A and Project B, over a 5-year horizon. The projects have the following projected cash flows: Project A: Initial Investment = $50,000; Cash Flows = $15,000 per year Project B: Initial Investment = $60,000; Cash Flows = $18,000 per year The company's required rate of return is 10%. Which of the following investment decision criteria would likely result in the selection of Project B over Project A?

Exam

CFA Level 1

Section

Difficulty

Corporate Finance

Selecting Between Projects Based on NPV

Hard Capital Budgeting Investment Decision Criteria

Consider a company evaluating two mutually exclusive projects, Project A and Project B, over a 5-year horizon. The projects have the following projected cash flows:

Project A: Initial Investment = $50,000; Cash Flows = $15,000 per year
Project B: Initial Investment = $60,000; Cash Flows = $18,000 per year

The company's required rate of return is 10%. Which of the following investment decision criteria would likely result in the selection of Project B over Project A?

Net Present Value (NPV) is higher for Project B.

Internal Rate of Return (IRR) is higher for Project A.

Payback period is shorter for Project B.

Hint

Submitted13.0K

Correct10.1K

% Correct78%