Two projects are under consideration with following details : Project A will require initial outlay of ₹60,000, will last for 5 years and will generate annual CFAT of ₹20,000. Project B will require initial outlay of ₹90

CS Executive · Financial and Strategic Management · PYQS · June 2023
Two projects are under consideration with following details : Project A will require initial outlay of ₹60,000, will last for 5 years and will generate annual CFAT of ₹20,000. Project B will require initial outlay of ₹90,000, will last for 5 years and will generate annual CFAT of ₹29,000. If the cost of capital of the company is 10%, which of the following statements is true regarding these projects ?
(A) Project A is better on the basis of NPV criteria, whereas project B is better on IRR criteria
(B) Project B is better on the basis of NPV criteria, whereas project A is better on IRR criteria
(C) Both the projects are indifferent and acceptable similarly on NPV and IRR criteria
(D) Both the projects shall be rejected on NPV and IRR criteria

Answer & Explanation:

Correct Answer: Option (B)

Official answer key: (B).

Topics: Financial Management

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