When Ranking Two Mutually Exclusive Investments with Different Initial Amounts

question 101

Multiple Choice

When ranking two mutually exclusive investments with different initial amounts but approximately the same useful life, and assuming no capital rationing, management should give priority to the project:

• A) That generates cash flows for the longer period of time.
• B) Whose net after-tax cash flows equal the initial investment outlay.
• C) That has the greater accounting rate of return (ARR).
• D) Whose cash flows vary the least.
• E) That has the higher net present value (NPV).

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Definitions:

Physiological Component

Aspects of bodily functions and processes that contribute to physical health or activity.

Polygraph

A device, also known as a lie detector, that measures and records several physiological indicators such as blood pressure, pulse, respiration, and skin conductivity while the subject is asked and answers a series of questions.

Galvanic Skin Response

Galvanic skin response is a physiological reaction that causes the conductivity of the skin to change in response to emotional arousal, stress, or stimulation.

Physiological Component

The aspect of something, such as an emotion or response, that involves bodily functions and reactions.