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.