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Project X has an NPV of $1 million and an IRR of 22%, Project has an NPV of $1
Project X has an NPV of $1 million and an IRR of 22%, Project has an NPV of $1.1 million and an IRR of 20% Project Z has an NPV of $1.2 million and an IRR of 21% Assume each project has an 18% cost of capital. If the projects are mutually exclusive, which project(s) should be selected? Select one: a. Y and Z Ob.z c. X and Y d. X, Y and Z e. X f. Y
Expert Solution
Answer B
if a project is expected to have an IRR greater than the rate used to discount rate the cash flows, then the project adds value to the business. If the IRR is less than the discount rate, it destroys value .
*So in the above question irr is greater than cost of capital in all of the three projects, that means all the three projects (X,Y,Z) adds value to the business
* Here they are saying if the project is mutually exclusive that means we should select one among all the three projects
*So we should select project which is having high NPV ,here project "Z" as highest npv
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