Sentry Oil Inc

question 53

Multiple Choice

Sentry Oil Inc. is considering two mutually exclusive projects as follows: Sentry's a cost of capital is 14%. It can spend no more than $350,000 on capital projects this year, which of the following statements is applicable when evaluating the projects by the NPV method?

• A)Both projects add shareholder wealth and should be undertaken.
• B)Project B appears to add more shareholder wealth than project A and should be done.
• C)Project A appears to add more shareholder wealth than project B and should be done.
• D)Project B should be undertaken because it requires a smaller investment.

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Definitions:

Economy's Potential

Refers to the maximum sustainable level of output an economy can produce, taking into account its resources and technology.

Time Preference

An individual's predisposition to prioritize present benefits over future benefits.

Real Interest Rates

The interest rates adjusted for inflation, more accurately representing the cost of borrowing and the yield on savings than the nominal interest rate.

Productive Projects

Initiatives or activities undertaken by firms or individuals that result in increased outputs or efficiency.