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There are two independent investment projects for the Galactic Empire. Project A (build TIE Fighters) costs the Empire $300,000 to set up, and it will provide annual cash inflows of $70,000 for 7 years. Project B (build Death Star) costs the Empire $1,000,000 to set up, and it will provide annual cash inflows of $255,000 for 6 years. The Empire’s cost of capital (i.e., the required return on investment) is 10% annually, and the Empire requires the initial investments in those projects be fully paid back within 4 years, or it will be running out of money by then.

Based on the IRR rule, what project(s) should the Empire accept?

a. Project A only.

b. Project B only.

c. Both Projects A and B.

d. Neither Project A or B.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92165254

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