A company is deciding whether to invest 20,000 in Project B The projects cannot be sub-divided and the company does not have the resources to invest both.
Project A has an Internal Rate of Return(IRR) of 20% and a Net Present Value (NPV) of 1,200 when its cash flows are discounted at the company’s cost of capital (15%). Project B has an IRR of 18% and a NPV of 1,500 when its cash flows are discounted at 15%.
The project that the company should choose to undertake is
A. Project B because the higher NPV means it creates more wealth for the company than Project A
B. Project A because it has a higher IRR than Project B
C. Project A because it has a higher NPV per pound invested than Project B
D. Project B because it has an IRR higher than the company’s cost of capital
