Project a Has an NPV of $20,000 and a PI

question 82

Multiple Choice

Project A has an NPV of $20,000 and a PI of 1.2.Project B has an NPV of $10,000 and a PI of 1.3.Both projects have equal lives.Which project should be preferred if we are NOT concerned with capital rationing (that is,we are NOT concerned with being short of funds) ?

• A)We should prefer Project B since it has a higher PI.
• B)We should compute the EAA before we make any decision.
• C)We should prefer Project A since it has a higher NPV.
• D)We should prefer Project B if it has a higher IRR.

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Definitions:

Output of Zero

A theoretical condition or benchmark where no goods or services are being produced or output is completely halted.

Average Total Cost

The cost per unit represented by dividing the entire production cost by the quantity of units produced.

Price of Labor

The wage rate or compensation paid to employees for their work or services.

Units of Output

The quantity or number of items produced or services rendered in a given time period.