Paper 3 · Investment Appraisal
Project A has a net present value (NPV) of 15 300 and an IRR of 14.20%. Based on these NPV and IRR results, which project should Mbire Limited select?
AProject A, because it requires a larger total investment (outlay plus working capital) than Project B.
BProject B, because it has both a higher NPV and a higher IRR than Project A.
CProject A, because a positive NPV alone always indicates the superior project, regardless of the alternative's returns.
DEither project, because a positive NPV for both means they create equal value for shareholders.
Explanation: Project B is preferred because it earns a higher net present value and a higher internal rate of return than Project A, meaning it creates more value at a lower cost of investment.
Derived from ZIMSEC Accounting Paper 3, June 2019, Q4
