A Company Is Choosing Between Two Projects

question 11

Multiple Choice

A company is choosing between two projects. The larger project has an initial cost of $100,000, annual cash flows of $30,000 for 5 years, and an IRR of 15.24%. The smaller project has an initial cost of $50,000, annual cash flows of $16,000 for 5 years, and an IRR of 16.63%. The projects are equally risky. Which of the following statements is CORRECT?

• A) Since the smaller project has the higher IRR, the two projects' NPV profiles cannot cross, and the smaller project's NPV will be higher at all positive values of WACC.
• B) Since the smaller project has the higher IRR, the two projects' NPV profiles will cross, and the larger project will look better based on the NPV at all positive values of WACC.
• C) If the company uses the NPV method, it will tend to favor smaller, shorter-term projects over larger, longer-term projects, regardless of how high or low the WACC is.
• D) Since the smaller project has the higher IRR but the larger project has the higher NPV at a zero discount rate, the two projects' NPV profiles will cross, and the larger project will have the higher NPV if the WACC is less than the crossover rate.
• E) Since the smaller project has the higher IRR and the larger NPV at a zero discount rate, the two projects' NPV profiles will cross, and the smaller project will look better if the WACC is less than the crossover rate.

Comprehend the challenges and issues caused by diversity in accounting practices across countries.

Understand the FASB-IASB convergence projects and their impact on accounting practices.

Recognize the role and objective of general purpose financial reporting as per the IASB's Conceptual Framework.

Understand the significance of IFRS to SMEs and the challenges involved in adopting these standards.

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Definitions:

Tasks

Specific pieces of work to be done or activities to be accomplished within a set period.

Stress

A physical, mental, or emotional factor that causes bodily or mental tension and may be a factor in disease causation.

Medical Assistant

A healthcare worker who performs administrative and clinical tasks in support of physicians and other health professionals, facilitating patient care.

Burnout

A state of physical, emotional, and mental exhaustion caused by prolonged stress and overwork, often resulting in decreased performance and motivation.