Two Projects Being Considered by a Firm Are Mutually Exclusive

question 74

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:

Necessary Item

Essential goods or services required for individuals to maintain their living standard or for businesses to operate efficiently.

Disaffirm

To officially reject, deny, or revoke a statement or agreement, especially in the context of contracts by minors or under conditions of misrepresentation.

Undue Hardship

A situation where accommodations or changes, typically required by law, would result in significant difficulty or expense for an employer or institution.

Right of Disaffirmation

A legal right allowing minors to void contracts they have entered into, based on their incapacity to fully understand the terms.