You Are Using a Net Present Value Profile to Compare

question 41

Multiple Choice

You are using a net present value profile to compare Projects A and B, which are mutually exclusive.Which one of the following statements correctly applies to the crossover point between these two?

• A)The internal rate of return for Project A equals that of Project B, but generally does not equal zero.
• B)The internal rate of return of each project is equal to zero.
• C)The net present value of each project is equal to zero.
• D)The net present value of Project A equals that of Project B, but generally does not equal zero.
• E)The net present value of each project is equal to the respective project's initial cost.

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Definitions:

Gain on Sale

The profit earned from selling an asset for more than its purchase price.

Net Realisable Value

The projected sales price under normal business operations minus the anticipated expenses to complete and the estimated costs required for the sale.

AASB 102

An Australian Accounting Standard Board regulation that specifies the accounting treatment for inventories, defining the costing methods and recognition criteria.

Inventories

Inventory held with the aim of disposal in customary business dealings, including products in the creation process intended for such deals, or as raw goods or stock for consumption in generating products or executing services.