You Are Considering the Following Two Mutually Exclusive Projects with the Following

question 123

Multiple Choice

You are considering the following two mutually exclusive projects with the following cash flows. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value. You should accept Project ____ because it has the _____ profitability index of the two projects.

• A) A; higher
• B) A; lower
• C) B; higher
• D) B; lower
• E) The profitability index should not be used to determine which of these projects should be accepted.

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Definitions:

Cyclical Variation

Periodic fluctuations in data or trends that happen over longer time intervals and are often related to economic, environmental, or societal cycles.

Seasonal Variation

A pattern seen in statistical data that occurs at regular intervals due to seasonal factors.

Random Variation

The unpredictability in the behavior or outcome of a process, due to the influence of random factors or noise.

Cyclical Variation

Fluctuations in statistical or economic data that occur periodically over cycles, such as those caused by the business cycle.