You Are Considering Two Independent Projects Both of Which Have

question 10

Multiple Choice

You are considering two independent projects both of which have been assigned a discount rate of 12 percent.Project A costs $39,100 and produces cash flows of $15,900 a year for 3 years.Project B costs $22,900 and produces cash flows of $14,000 a year for 2 years.Based on the profitability index,what is your recommendation concerning these projects?

• A)Accept both projects
• B)Accept Project B because it has the lower PI
• C)Accept Project A because it has the lower PI
• D)Accept Project A and reject Project B
• E)Reject Project A and accept Project B

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Definitions:

Cash Flow

The total amount of money being transferred into and out of a business, often used as an indicator of financial health.

Assets

Resources owned by a company that have economic value and can be converted into cash.

Millions

A numerical unit equal to 1,000,000 or 10^6, often used in accounting and financial reporting to denote large values.

Cash Flow

The net amount of cash being transferred into and out of a business, reflecting the company's liquidity and overall financial health.