Fritz Walther, the CEO of Carl Walther Sportwaffen GmbH, is choosing between two mutually exclusive projects: (1 ) the Walther PBJ; and (2 ) the Walther PPK. Both projects involve an investment of $100,000
The operating cash flows for each project are shown in the table. The opportunity cost of capital is 10%. The PBJ project has an IRR of 11.65% and the PPK project has an IRR of 12.27%. Which project should Fritz choose (and why)?
Year PBJ PPK
0 -100,000 -100,000
1 40,000 90,000
2 80,000 25,000
A) Choose the PPK project because its IRR is greater.
B) Choose the PPK because its NPV is higher.
C) Choose the PBJ because its NPV is higher.
D) Choose the PPK because it generates more operating cash flows.
E) Choose either because they both have the same NPV.
E
You might also like to view...
A network co-evolution approach argues that:
a. Networks shape institutions but institutions sculpt networks and direct their growth b. Networks develop through distinct stages from embryo to organism c. Networks evolve from a chrysalis d. All of the above
On-demand service companies collect a fee from both sellers and buyers who use the platform.
Answer the following statement true (T) or false (F)
In waiting line problems, the interarrival time is assumed to follow a probability distribution known as ______.
a. Poisson distribution b. binomial distribution c. normal distribution d. negative exponential distribution
Dag and Elke are holders of common stock in Fragrances, Inc. (FI). Like other holders of common stock, they have a residual position in the overall financial structure of FI, because they
A. are guaranteed to receive more than the amount of their investment. B. are the last to receive payment for their investment. C. have priority to FI's assets if FI becomes insolvent. D. reside in the state of FI's incorporation.