projects of equal risk. Project X costs $100,000 while Project Y costs $5o0,000.

Question

projects of equal risk. Project X costs $100,000 while Project Y costs $5o0,000. The cash flows expected from these projects are shown below: 100,000 200,00 Based on the info above select what you think applies: (2 Points) The analyst cannot rank the projects because no cost of capital is given. The analyst should recommend both projects because they both produce positive internal rates of return The analyst should rank the Project X higher than Project Y because it has the higher internal rate of return. The analyst should rank the Project Y higher than Project X because it has the higher internal rate of return.

Explanation / Answer

The option is D ie., the Analyst should rank the project Y higher than project X because it has the higher internal rate of return .

Reason: general rule is if NPV is positive the project should be accepted and if its negative project should be rejected.

general rule of IRR is the project which has a higher IRR should be accepted and the project with the lesser IRR compared to the previous IRR should be Rejected. Both the projects cannot be accepted saying they have positive IRR. hence in the given case Project Y ie., 15.8% should rank higher than Project X ie.,15.2%.

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