2D4A WEARWELL COMPANY IS CONSIDERING THREE INVESTMENT PROJECTS. WEAR...

353.

CSO: 2D4c

LOS: 2D4a

Wearwell Company is considering three investment projects. Wearwell’s president asked

the controller to prepare a report and recommend an appropriate investment decision.

The results of the controller’s calculations for the three projects are as follows.

Project

Net present value

Internal rate of return

A

$20,680

12%

B

30,300

10%

C

15,000

13%

The company expects a minimum net present value (NPV) of $20,000 from accepted

projects. The projects are mutually exclusive and Wearwell’s cost of capital is 8%.

Which one of the following options should the controller recommend to the president?

a.

Project C because it has the highest internal rate of return (IRR).

b.

Project B because it has the highest net present value (NPV).

c.

Projects A, B, and C because each of the projects have an IRR greater than the

cost of capital.

d.

Projects A and B because they exceed the minimum expected NPV.