irr

问题如下：

With regard to Project A and Project B, which of the following is true?

选项：

Both projects should be invested in according to the IRR decision rule

Both projects should be invested in according to the NPV decision rule

Only Project B should be invested in according to the IRR decision rule.

解释：

C is correct. The IRR decision rule is to invest if the IRR exceeds the required rate of return or hurdle rate. Project B’s IRR is 8.97%, which exceeds the required rate of return of 8%; however, Project A’s IRR is 7.04%, which is below the required rate of return of 8%.

The NPV of both projects can be calculated as follows:

Using the same equation, we can solve for the IRRs by assuming that NPV = 0.

A is incorrect because Project B’s IRR is 8.97%, which exceeds the required rate of return of 8%; however, Project A’s IRR is 7.04%, which is below the required rate of return of 8%. Consequently, only Project B meets the IRR decision rule.

B is incorrect because the NPV decision rule is to invest if the NPV is greater than 0. Project B’s NPV is $1.12 million, while Project A’s NPV is –$0.38. Consequently, only Project B meets the NPV decision rule.