You Are Considering Two Mutually Exclusive Projects with the Following

question 293

Multiple Choice

You are considering two mutually exclusive projects with the following cash flows. Which project(s) should you accept if the discount rate is 7 %? What if the discount rate is 10 %?

• A) Accept project A as it always has the higher NPV.
• B) Accept project B as it always has the higher NPV.
• C) Accept A at 7 % and B at 10 %.
• D) Accept B at 7 % and A at 10 %.
• E) Accept A at 7 % and neither at 10 %.

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Definitions:

Tax Rate

The chunk of income designated by the government to be taken as tax from corporations or the public.

CCA Rate

Capital Cost Allowance rate, which is the percentage rate at which Canadian businesses can claim depreciation on assets for tax purposes.

Operating Cash Flow

The amount of cash generated by a company's regular business operations, indicating its ability to pay bills and fund operations.

Depreciation

A method to allocate a portion of the original cost of an asset to expense over its expected useful life to reflect its decreasing value.