You Are Considering Two Mutually Exclusive Projects with the Following

question 178

Multiple Choice

You are considering two mutually exclusive projects with the following cash flows. Will your choice
between the two projects differ if the required rate of return is 8 percent rather than 11 percent? If
so, what should you do?

• A) Yes; Select A at 8 percent and B at 11 percent.
• B) Yes; Select B at 8 percent and A at 11 percent.
• C) Yes; Select A at 8 percent and select neither at 11 percent.
• D) No; Regardless of the required rate, project A always has the higher NPV.
• E) No; Regardless of the required rate, project B always has the higher NPV.

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Definitions:

Profitability Index

A calculation used to assess the attractiveness of an investment, calculated as the present value of future cash flows divided by the initial investment.

Independent Project

A project that can be pursued without affecting the acceptance or funding of other projects, allowing for standalone consideration in decision-making.

Net Present Value

The contrast in the present value of money received and the present value of money spent over a designated duration, applied in capital budgeting to appraise the profitability of a potential investment.

Cash Inflows

Refers to the money received by a business from its various activities, including sales, investments, financing, etc.