Two Projects Being Considered by a Firm Are Mutually Exclusive

question 2

Multiple Choice

Two projects being considered by a firm are mutually exclusive and have the following projected cash flows: Based only on the information given, which of the two projects would be preferred, and why?

• A) Project A, because it has a shorter payback period.
• B) Project B, because it has a higher IRR.
• C) Indifferent, because the projects have equal IRRs.
• D) Include both in the capital budget, since the sum of the cash inflows exceeds the initial investment in both cases.
• E) Choose neither, since their NPVs are negative.

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Definitions:

Sternberg

often associated with Robert Sternberg, an American psychologist known for his theory on intelligence, creativity, and wisdom.

Intelligence

The capacity for learning, understanding, problem-solving, and the ability to acquire and apply knowledge.

Brainstorming

Brainstorming is a creative problem-solving technique involving the spontaneous contribution of ideas from all members of a group to generate a wide range of solutions.

Internal Motivation

The drive to achieve or perform that comes from within an individual, rather than from external pressures or rewards.