2D2B TWO MUTUALLY EXCLUSIVE CAPITAL EXPENDITURE PROJECTS HAVE THE FOL...

336.

CSO: 2D2b

LOS: 2D2b

Two mutually exclusive capital expenditure projects have the following characteristics.

Project A

Project B

Investment

$100,000

$150,000

Net cash inflow - Year 1

40,000

80,000

Year 2

50,000

70,000

Year 3

60,000

60,000

All cash flows are received at the end of the year. Based on this information, which one

of the following statements is not correct?

a.

The net present value of Project A at a cost of capital of 10% is $22,720.

b.

The net present value of Project B at a cost of capital of 12% is $19,950.

c.

The internal rate of return of Project B is greater than the internal rate of return of

Project A.

d.

The payback years for Project A is greater than the payback years for Project B.