Project a Has a $5,000 Net Present Value at a Zero

question 77

Multiple Choice

Project A has a $5,000 net present value at a zero discount rate and an internal rate of return of 12%.Project B has an $8,000 net present value at a 0% discount rate and an IRR of return of 10%.If the projects are mutually exclusive,which one should be chosen?

• A) Project A because it has a higher internal rate of return.
• B) Project B if the cost of capital is less than the crossover point.
• C) Both projects if the net present value is positive.
• D) Neither project meets the investment criteria.

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Definitions:

Outstanding Common Stock

Shares of a company's common stock that have been issued and are in the hands of investors, including those held by the public and company insiders but excluding treasury shares.

Annual Amortization

The procedure of methodically deducting the starting cost of an intangible asset throughout its period of utility.

Retained Earnings

The portion of net profits not distributed to shareholders but reinvested in the business or kept as reserve.

Net Income

The profit a company retains after deducting every expense, tax, and cost from its total income.