You Are Comparing Two Mutually Exclusive Projects

question 26

Multiple Choice

You are comparing two mutually exclusive projects. The crossover point is 12.3 percent. You have determined that you should accept project A if the required return is 13.1 percent. This implies you should: 

• A) always accept Project A. 
• B) be indifferent to the projects at any discount rate above 13.1 percent. 
• C) always accept Project A if the required return exceeds the crossover rate. 
• D) accept Project B only when the required return is equal to the crossover rate. 
• E) accept Project B if the required return is less than 13.1 percent. 

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Definitions:

Risk-free Asset

An investment that is expected to return its full original value along with a specified interest rate with virtually no risk of financial loss.

Beta

An evaluation of the unsteadiness, or systematic jeopardy, of a security or collective financial investments when compared to the market as a whole.

CAPM

The Capital Asset Pricing Model, a formula used to determine the theoretical expected return of an investment given its risk relative to the market.