Projects a and B Are Mutually Exclusive

question 41

Multiple Choice

Projects A and B are mutually exclusive. Project A costs $10,000 and is expected to generate cash inflows of $4,000 for 4 years. Project B costs $10,000 and is expected to generate a single cash flow in year 4 of $20,000. The cost of capital is 12%. Which project would you accept and why?

• A) Project B because it has the higher NPV.
• B) Project B because it has the higher IRR.
• C) Project A because it has the higher NPV.
• D) Project A because it has the higher IRR.

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Definitions:

Lean Accounting

An accounting practice that supports lean enterprise philosophies, focusing on value streams and reducing waste in financial processes.

Indirect Labor

Any labor needed to make a product that is not directly traced to the product.

Product Cells

Small, autonomous manufacturing units within a facility focused on producing a specific family of products or components.

Predetermined Factory Overhead Rate

The rate used to apply factory overhead costs to the goods manufactured. The rate is determined by dividing the estimated total factory overhead costs by the estimated activity base at the beginning of the fiscal period.