"rojects A and B are mutually exclusive. Project A costs $20,000 and is expected to generate cash inflows of $7,500 for 4 years. Project B cos nd is expected to generate a single cash flow in year 4 of $20,000. The cost of capital is 12%. Which project would you accept and why?

"rojects A and B are mutually exclusive. Project A costs $20,000 and is expected to generate cash inflows of $7,500 for 4 years. Project B cos nd is expected to generate a single cash flow in year 4 of $20,000. The cost of capital is 12%. Which project would you accept and why?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 6PB: There are two projects under consideration by the Rainbow factory. Each of the projects will require...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

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Projects A and B are mutually exclusive. Project A costs $20,000 and is expected to generate cash inflows of $7,500 for 4 years. Project B costs $10,000
and is expected to generate a single cash flow in year 4 of $20,000. The cost of capital is 12%. Which project would you accept and why?
Multiple Choice
Project B because it has the higher NPV
Project A because it has the higher IRR
Project A because it has the higher NPV
Project B because it has the higher IRR
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