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

question 87

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) not enough information

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Definitions:

Direct Materials

The raw materials and components that are directly incorporated into a finished product and can be easily traced to it.

Activity Level

A measure of the volume of production or services that determines the amount of costs incurred in a business.

Administrative Expenses

Costs related to the general operation of a business, such as salaries of executive personnel, accounting, and human resources.

Activity Variance

The difference between the budgeted amount of activity and the actual activity level.