Consider Two Mutually Exclusive Projects a & B

question 9

Multiple Choice

Consider two mutually exclusive projects A & B.If you subtract the cash flows of opportunity B from the cash flows of opportunity A,then you should:

• A)take opportunity A if the regular IRR exceeds the cost of capital.
• B)take opportunity A if the incremental IRR exceeds the cost of capital.
• C)take opportunity B if the regular IRR exceeds the cost of capital.
• D)take opportunity B if the incremental IRR exceeds the cost of capital.

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Definitions:

Ending Inventories

The final value of goods available for sale at the end of an accounting period, calculated through physical count or estimation.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including material costs and direct labor.

Gross Profit

The income a business earns after subtracting the expenses related to the production and sale of its goods, or the expenses incurred in delivering its services.

Net Income

The total profit of a company after all expenses, including taxes and costs, have been deducted from total revenue.