Which of the following statements about these

Which of the following statements about these investments is true?
A) The investor should take investment A since it has a greater net present value (NPV).
B) The investor should take investment A since it has a greater internal rate of return
(IRR).
C) The investor should take investment B since it has a greater net present value (NPV).
D) The investor should take investment B since it has a greater internal rate of return
(IRR).
Answer: C
Explanation: C) Using a financial calculator, NPV(A) = -$0.002 million, IRR(A) =
8.896%, NPV(B) = $0.027, IRR(B) = 10.652%;
Use NPV to decide mutually exclusive projects.
(23) Mary is in contract negotiations with a publishing house for her new novel. She has
two options. She may be paid $100,000 up front, and receive royalties that are expected to
total
$26,000 at the end of each of the next five years. Alternatively, she can receive $200,000 up
front and no royalties. According to the NPV rule, which of the two deals should she choose,
given a discount rate of 8%?
(24) A project has the following expected cash flows:
Project A
Year 0 -$35,000
Year 1 $0
Year 2 $11,000
Year 3 $13,500
Year 4 $13,500
Year 5 $2,500
Which of the following investment rules would indicate that she should take the former deal,
given a discount rate of 8%?
Rule I: The Net Present Value rule
Rule II: The Payback Rule with a payback deadline of 4 years
Rule III: The internal rate of return (IRR) Rule

B) Rule II only
C) Rule III only
D) Rule I and III
Answer: B
Explanation: A) Using a financial calculator, enter
CF0 = -35000, CF1 = 0, CF2 = 11000, CF3 = 13500, CF4 = 13500, CF5 = 2500; calculate
IRR = 4.72% and NPV (for I = 8%) = - $3,228.18. Both indicate the project to be value-
diminishing. Payback rule: It takes less than 4 years to recover the initial $35,000, so accept
it.
(25)
Project A Project B
Time 0 -10,000 -10,000
Time 1 5,000 4,000
Time 2 4,000 3,000
Time 3 3,000 10,000
If WiseGuy Inc is choosing one of the above mutually exclusive projects (Project A or Project
B), given a discount rate of 8%, which should the company choose?