Question

Which assertion about statement 1 and statement 2 is true? Project A would cost 13,702 dollars today and have the following other expected cash flows: 2,107 dollars in 1 year, 7,356 dollars in 2 years, and 11,328 dollars in 4 years. The cost of capital for project A is 12.76 percent. Project B would cost 16,619 dollars today and have the following other expected cash flows: 2,296 dollars in 1 year, 5,313 dollars in 3 years, and 13,327 dollars in 4 years. The cost of capital for project B is 7.52 percent. Statement 1: Project A would be accepted based on the project's net present value (NPV) and the NPV rule Statement 2: Project B would be accepted based on the project's internal rate of return (IRR) and the IRR rule Statement 1 is true and statement 2 is true Statement 1 is false and statement 2 is false Statement 1 is true and statement 2 is false Statement 1 is false and statement 2 is true

Answer 1

B23 14 15 16 x fc =IRR(B17:321) A B C D Cash flows Year | Project A Project B [email protected]% [email protected]% A A B C (13,702) $ (16,619) 1.000 1.000 $ 1 $ 2,107 $ 2,296 0.887 0.930 $ $ 7,356 $ 0.786 0.865 $ - $ 5,313 0.697 0.805 $ 4 $ 11,328 $ 13,327 0.619 0.748 $ 18 Present value of cash flows Project A Project B Ахс BxD (13,702.00) $ (16,619.00) 1,868.57 $ 2,135.42 5,785.38 $ - $ 4,274.37 7,007.01 $ 9,971.84 21 23 IRR 15.51% 7.06% NPV $ 958.96 $237.37 24 25 Select option "Statement 1 is false and statement 2 is True"

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