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ABC Corporation wants to determine which of the following project to invest
ABC Corporation wants to determine which of the following project to invest.
Time 0
Time 1
Time 2
Time 3
Time 4
Time 5
Project A
-$100,000.00
$20,000.00
$30,000.00
$42,000.00
$30,000.00
$40,000.00
Project B
-$150,000.00
$23,000.00
$32,000.00
$45,000.00
$60,000.00
$60,000.00
Which of following statement is correct?
a.
Project A has the same payback period as project B. Hence these two projects are the same to us.
b.
Based on a NPV calculation with 3.6% interest rate, project A is better than project B.
c.
Based on an IRR calculation, project A is better than project B.
d.
IRR is not reliable for these two projects, we should make our decision based on NPV.
Expert Solution
So, the correct option is C "Based on an IRR calculation, project A is better than project B". As IRR is higher for Project A than B.
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