(10 points) Alpha Inc. has the following two projects that it is considering, an
ID: 2615135 • Letter: #
Question
(10 points) Alpha Inc. has the following two projects that it is considering, and it wants to choose one. Project A has an investment outlay/expense today of $900, and its cash flows over the next three years are $420, $550, and $630. Project B has an outlay of $1,800, and cash flows of $880, $1,110, and $1,180. Which project should Alpha choose? (You can assume no taxes.)
a)Cannot make a choice based on information given
b)Project A
c)Does not matter; both are essentially the same
d) Project B (incorrect) X
Explanation / Answer
Dear student...Thank you for using chegg...correct answer is a)Cannot make a choice based on information given
In the above question discount rate/cost of capital is not given...So we cannot compute present value of cash inflows as well as cash outflows...Since PV cannot be computed therefore we cannot compute NPV or PI to make a decision...Also if we compute IRR then also we cannot make decision...as company's discount rate is not given with which it can be compared
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