ABC Ltd and DEF Ltd Are Each Considering the Same

question 39

Multiple Choice

ABC Ltd and DEF Ltd are each considering the same two investment projects;Project G and Project H.These two projects are mutually exclusive.The cash flows produced by each project are the same for both companies.These cash flows are given below: The required rate of return of ABC Ltd is 6.3% whilst the required rate of return of DEF ltd is 4.1% pa.The IRR is Project G is 7.27% whilst the IRR of Project H is 7.87%.Which project should each company invest in if they wish to maximise shareholder wealth?

• A)ABC Ltd should chose Project G and DEF Ltd should chose Project G.
• B)ABC Ltd should chose Project H and DEF Ltd should chose Project H.
• C)ABC Ltd should chose Project H and DEF Ltd should chose Project G.
• D)ABC Ltd should chose Project G and DEF Ltd should chose Project H.

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Definitions:

Adaptation

The process by which organisms adjust and change to their environment for survival and reproduction.

Stimulus Habit

The development of a repeated, automatic response to a specific stimulus over time.

Attention

The act of concentrating on a specific object, task, or activity while ignoring irrelevant information or distractions.

Intensity

The degree of strength, force, or concentration of an activity, emotion, or property.