You Are Considering Two Independent Projects with the Following Cash

question 92

Multiple Choice

You are considering two independent projects with the following cash flows.The required return for both projects is 16 percent.Given this information, which one of the following statements is correct?

• A)You should accept Project A and reject Project B based on their respective NPVs.
• B)You should accept Project B and reject Project A based on their respective NPVs.
• C)You should accept Project A and reject Project B based on their respective IRRs.
• D)You should accept Project B and reject Project A based on their respective IRRs.
• E)You should accept both projects based on both the NPV and IRR decision rules.

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Definitions:

U-Shaped

A descriptive term for a scenario where performance or conditions decline, then bottom out, and finally improve, thus resembling the letter "U".

Average Variable Cost Curve

A graph that represents the variable costs of production divided by the quantity of output, illustrating how cost changes with changes in output.

U-Shaped

Describing a type of graph or relationship where the values fall, then rise, forming a shape similar to the letter "U".

Short-Run Cost Function

The relationship between the total cost and output when at least one factor of production is fixed.