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Answer: Project 1 only.
The correct answer is **A** because, for mutually exclusive projects, the NPV criterion is more economically sound when there is a conflict between NPV and IRR rankings. Project 1 has a higher NPV ($180,000) compared to Project 2 ($100,000), despite Project 2 having a higher IRR (15% vs. 10%). Since the company can only invest in one project, it should choose the one with the higher NPV, which is Project 1.
Author: LeetQuiz Editorial Team
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A company is evaluating two mutually exclusive capital projects with the following details:
$180,000, IRR 10%$100,000, IRR 15%
If the company's hurdle rate is 8%, which project(s) should the company invest in?A
Project 1 only.
B
Project 2 only.
C
Both Project 1 and Project 2.
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