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:

Capitalization

The use of uppercase letters to denote the beginning of sentences, proper nouns, or other specific elements according to grammar rules.

Master's

An advanced academic degree awarded by universities or colleges upon completion of a course of study demonstrating mastery in a specific field of study or area of professional practice.

Ph.D.

An abbreviation for Doctor of Philosophy, a prestigious academic degree awarded by universities to individuals who have completed advanced research in a specific field of study.

Microsoft

An American multinational technology company known for producing software, electronics, and personal computers.