Question

You are trying to determine which of two mutually exclusive projects to undertake. Project Adam has an initial outlay of $10,000, an NPV of $4,392.15, an IRR of 11.33%, and an EAA of $1,158.64. Project Eve has an initial outlay of $15,000, an NPV of $5,833.73, an IRR of 9.88%, and an EAA of $1,093.50. The cost of capital for both projects is 9%, and the projects have different lives. If the projects are repeatable, then: You should do both projects because they have positive NPVS. You should do Project Adam because it has a higher EAA. You should do Project Eve because it has a higher NPV. You should do Project Adam because it has a higher IRR. You should do neither projects since neither of them adds value to you.

Answer 1

In case of mutually exclusive projects , when the NPV and the IRR disagree then the project that has the highest NPV should be chosen as the NPV rule , take precedence over the IRR .

In between the two project, the project which has the highest NPV is project EVE. Hence, this project should be chosen.

So, the correct option is option C.