Projects a and B Are Mutually Exclusive

question 106

Multiple Choice

Projects A and B are mutually exclusive. Project A costs $20,000 and is expected to generate cash inflows of $7,500 for 4 years. Project B costs $10,000 and is expected to generate a single cash flow in year 4 of $20,000. The cost of capital is 12%. Which project would you accept and why?

• A) Project B because it has the higher NPV
• B) Project B because it has the higher IRR
• C) Project A because it has the higher NPV
• D) Project A because it has the higher IRR

---

Definitions:

Cost Pool

A grouping of individual costs, typically by department or service, from which cost allocations are made.

Assigned

The process of designating or allocating resources, responsibilities, or tasks to individuals or groups.

Subunit Activities

Activities or tasks performed by individual parts of an organization, contributing to the overall operational goals.

Volume-Based Cost Driver

A measure that allocates costs based on the volume of goods produced or services rendered, such as units produced or hours worked.