Consider the two mutually exclusive investment projects given in the table below
ID: 2792139 • Letter: C
Question
Consider the two mutually exclusive investment projects given in the table below for which MARR=12%.
On the basis of the IRR criterion, which project would be selected under an infinite planning horizon with project repeatability likely?
Net Cash Flow
n
Project A
Project B
0
$4,000
$11,000
1
1,500
9,500
2
2,000
9,500
3
2,000
—
IRR
16.88%
45.66%
Net Cash Flow
n
Project A
Project B
0
$4,000
$11,000
1
1,500
9,500
2
2,000
9,500
3
2,000
—
IRR
16.88%
45.66%
Explanation / Answer
Project B should be selected.
The decision rule of the IRR is The project with higher IRR should be selected.