Q: This question relates to a comparison of the projects described in questions 5 and 8.
Refer to the projects in questions 5 and 8. Which of the following best describes the actions you would take based on your analysis?
or
Q: The project descriptions in questions 5 and 8 are compared in this question.
Please consult the projects mentioned in questions 5 and 8. Based on your analysis, which of the following best sums up what you would do?
- Accept both projects
- Reject both projects
- Reject the project in question 5 and accept the project in question 8
- Accept the project in question 5 and reject the project in question 8
Explanation: Generally, projects with a positive NPV should be accepted, while those with a negative NPV should be rejected. Both projects have negative NPVs, indicating that neither project is expected to add value to the firm.Typically, if the IRR exceeds the company’s cost of capital, the project is acceptable. However, both projects have IRRs below the cost of capital (15% for question 5 and 8% for question 8), meaning they do not meet the desired return threshold.
