Generation X Ltd. has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 (Rs . 100,000) ( Rs. 100,000) 1…
BBS Fundamentals of Financial Management · 2079 · Solved Question with Answer
Generation X Ltd. has identified the following two mutually exclusive projects:
| Year | Cash Flow (A) | Cash Flow (B) |
| 0 | (Rs. 100,000) | (Rs. 100,000) |
| 1 | 35,000 | 45,000 |
| 2 | 35,000 | 30,000 |
| 3 | 35,000 | 40,000 |
| 4 | 35,000 | 10,000 |
a. What is the internal rate of return for each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct?
b. If the required return is 11 percent, what is the NPV for each of these projects? Which project will you choose if you apply the NPV decision rule?
c. If there were a conflict between IRR and NPV decision rules, how would you choose the project?
d. Why the projects become mutually exclusive?