An Entity Is Contemplating Investing in a Long-Term Project

question 55

Multiple Choice

An entity is contemplating investing in a long-term project. A comparison of two mutually exclusive projects reveals that Project A has an initial outlay of $10 000 with cash inflows of $3400 for years 1-5; Project B has a cash outlay of $4500 with cash inflows of $1400 for years 1-5. If the minimum rate of return is 20%, which of the following statements is incorrect?

• A) The internal rate of return suggests that Project A would be accepted and Project B would not.
• B) The net present value suggests that Project A would be accepted and Project B would not.
• C) The net present value for Project B is a negative amount.
• D) If the projects were not mutually exclusive, the net present values would suggest that both projects should be selected.

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Definitions:

Services Rendered

Work or services that have been provided or completed for a client or customer, usually culminating in a request for payment.