Under certain conditions, a particular project may have more than one IRR. Given two mutually exclusive projects and a zero cost of capital, the payback method and NPV method of selecting investments will always lead to the same decision on which project to undertake.
What is the NPV decision rule for mutually exclusive projects?
Mutually exclusive projects: If the NPV of one project is greater than the NPV of the other project, accept the project with the higher NPV. If both projects have a negative NPV, reject both projects.
How should managers compare two mutually exclusive projects of unequal?
How should managers compare two mutually exclusive projects of unequal size? the firm should select the project with the largest NPV. When capital rationing exists, the firm should select the set of projects with the largest combined net present value.
Which is the best example of two mutually exclusive projects?
Which one of the following is the best example of two mutually exclusive projects? -Using an empty warehouse to store both raw materials and finished goods. -Building a furniture store beside a clothing outlet in the same shopping mall. -Producing both plastic forks and spoons on the same assembly line.
When to accept project a or project B?
-Accept Project B if the required return is less than 13.1 percent. -Be indifferent to the projects at any discount rate above 13.1 percent. -Accept Project B only when the required return is equal to the crossover rate. -Always accept Project A if the required return exceeds the crossover rate.
What is the required return for both projects?
The required return for both projects is 16 percent. Based on IRR, you should: -Accept both projects. -Reject both projects. Which one of the following methods determines the amount of the change a proposed project will have on the value of a firm?
What makes the net present value of a project equal zero?
-Discount rate which causes the net present value of a project to equal zero. -Maximum rate of return a firm expects to earn on a project. -Discount rate that equates the net cash inflows of a project to zero. Discount rate which causes the net present value of a project to equal zero.
