Problem:
Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 10 percent. Project A s Cash flow from year 0 to year 3: -1000, 400, 400, 700. Project B s Cash flow from year 0 to year 3: -500, 200, 300, and 300. Which statement is correct?
• Accept A, reject B, because B has lower IRR
• Reject A, accept B, because B has higher IRR
• Accept A, reject B, because A has higher NPV
• Reject A, accept B, because B has higher NPV
Please explain in detail and also provide full explanation.