Martin Manufacturing Is Considering Two Normal, Equally Risky, Mutually Exclusive

question 46

Multiple Choice

Martin Manufacturing is considering two normal, equally risky, mutually exclusive, but not repeatable projects.Martin's cost of capital is 10%.The two projects have the same investment costs, but Project A has an IRR of 15%, while Project B has an IRR of 20%.Assuming the projects' NPV profiles cross in the upper right quadrant, which of the following statements is CORRECT?

• A) Since the projects are mutually exclusive, the firm should always select Project B.
• B) If the crossover rate is 8%, Project B will have the higher NPV.
• C) Only one project has a positive NPV.
• D) If the crossover rate is 8%, Project A will have the higher NPV.
• E) Each project must have a negative NPV.

---

Definitions:

Allowance Method

An accounting technique used to estimate bad debts (uncollectible accounts receivable) and represent them in financial statements.

Industry Average

A benchmark or standard calculated by taking the average of a specific metric across multiple companies within the same industry, useful for comparative analysis.

Adjusting Entry

An accounting record made to update the balances of accounts at the end of an accounting period before the preparation of financial statements.

Sales

Transactions involving the transfer of goods or services from a seller to a buyer in exchange for money or other considerations.