You Are Given a Job to Make a Decision on Project

question 53

Multiple Choice

You are given a job to make a decision on project X, which is composed of three independent projects A, B, and C that have NPVs of + $70, -$40 and + $100, respectively. How would you go about making the decision about whether to accept or reject the project?

• A)Accept project X as it has a positive NPV.
• B)Reject project X.
• C)Break up the project into its components: Accept A and C, but reject B.
• D)Break up the project into its components: Accept C.

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Definitions:

Passive Income

Income generated from ventures in which an individual is not actively involved.

At-risk Amount

The amount of money an investor can actually lose from an investment, often used to limit losses in activities where money is at risk.

Passive Activities

Economic activities in which an individual participates without materially managing or operating them, often associated with rental properties or businesses in which the individual does not actively engage.

Income

Money received, especially on a regular basis, for work or through investments.