Question

Douglass Interiors is considering two mutually exclusive projects and have determined that the crossover rate for these 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?I. Project A should be accepted as its IRR is closer to the crossover point than is Project B's IRR.II. Project B should be accepted as it has the higher IRR.III. Both projects should be accepted as both of the project's IRRs exceed the crossover rate.IV. Neither project should be accepted since both of the project's IRRs exceed the crossover rate.V. You cannot determine which project should be accepted given the information provided.

Answer 1

Answer:

V) You cannot determine which project should be accepted given the information provided.

Explanation:

The best way to determine which project to accept or reject is the net present value (NPV) and we do not have enough information to calculate it. Both projects have positive internal rates of return (IRR), but does any of them have a positive NPV? We cannot tell, so it is not possible to choose one or the other.