Question text Johnson Mirrors is facing the possibility of two mutually exclusive projects. They have determined that the required rate for similar projects is 11.7 percent. Project A has an internal rate of return (IRR) of 15.3 percent and Project B has an IRR of 16.5 percent. Given this information, which one of the following statements is correct? Select one:
a. Project A should be accepted as its IRR is closer to the crossover point than is Project B's IRR.
b. Project B should be accepted as it has the higher IRR.
c. Both projects should be accepted as both of the project's IRRs exceed the crossover rate.
d. Neither project should be accepted since both of the project's IRRs exceed the crossover rate.
e. You cannot determine which project should be accepted given the information provided.
Question text Johnson Mirrors is facing the possibility of two mutually exclusive projects. They have determined that the required rate for similar projects is 11.7 percent. Project A has an internal rate of return (IRR) of 15.3 percent and Project B has an IRR of 16.5 percent. Given this information, which one of the following statements is correct? Select one:
a. Project A should be accepted as its IRR is closer to the crossover point than is Project B's IRR.
b. Project B should be accepted as it has the higher IRR.
c. Both projects should be accepted as both of the project's IRRs exceed the crossover rate.
d. Neither project should be accepted since both of the project's IRRs exceed the crossover rate.
e. You cannot determine which project should be accepted given the information provided.
Related questions
You are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value
| Year | Project(A) | Project (B) |
| 0 | -$30,000 | -$25,000 |
| 1 | 10,000 | 8,000 |
| 2 | 11,000 | 8,000 |
| 3 | 12,000 | 8,000 |
| 4 | 13,000 | 8,000 |
The required rate of return is 10%.
(a) What is the NPV for each of the projects? Which project should be accepted if NPV method is applied? Explain why.
(b) What is the IRR for each of the projects? Which project should be accepted if IRR method is applied? Explain why.
(c) What is the payback period for each of the projects? Which project should be accepted if payback period method is applied? Explain why.
(d) What is the discounted payback period for each of the projects? Which project should be accepted if discounted payback period method is applied? Explain why.
(e) What is the profitability index for each of the projects? Which project should be accepted if profitability index method is applied? Explain why.
(f) Find the crossover rate. Show the equation.
(g) Sketch the NPV profile. You must plot at least 5 points for the profile: two points on the x and y axis each, and the cross-over rate on the x axis.
