Projects a and B Are Mutually Exclusive Lending Projects

question 70

Multiple Choice

Projects A and B are mutually exclusive lending projects. Project A has an IRR of 20% while Project B has an IRR of 30%. You would be most apt to select Project A if:

• A) Project B has a longer life than Project A.
• B) Project A has more risk than Project B.
• C) Project A is twice the size of Project B.
• D) Project B has a larger cash inflow in Year 1 than Project A.

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Definitions:

Lease As Purchase

An agreement where the lessee has the option or obligation to purchase the leased asset at the end of the lease term.

Mortgage Payable

A long-term liability reflecting the amount of money borrowed to purchase property, to be repaid over a set period with interest.

Specific Property

A clearly identified piece of property, which can be real or personal, distinguished from all other properties.

Interest-Bearing Notes

Written promises to pay a specified sum of money, plus interest, on a certain date to the holder of the note.