Isaac Has Analyzed Two Mutually Exclusive Projects of Similar Size

question 109

Multiple Choice

Isaac has analyzed two mutually exclusive projects of similar size and has compiled the following information based on his analysis.Both projects have 3- year lives. Isaac has been asked for his best recommendation given this information.His recommendation should be to accept:

• A)both projects.
• B)project B because it has the shortest payback period.
• C)project B and reject project A based on their net present values.
• D)project A and reject project B based on their average accounting returns.
• E)neither project.

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Definitions:

Government Intervention

Regulatory actions taken by a government in order to affect or interfere with decisions made by individuals, groups, or organizations regarding economic and social matters.

Equilibrium Price

The price at which the quantity of a good or service demanded by consumers is equal to the quantity supplied by producers, resulting in a stable market condition.

Marginal Consumer

A consumer who is indifferent between purchasing and not purchasing an additional unit of a good, based on the current price.

Social Cost

The total cost of an activity to society, including both private and external costs.