If a Company Must Choose Between Two Mutually Exclusive Investment

question 88

Multiple Choice

If a company must choose between two mutually exclusive investment projects, the best general method to employ for decision-making purposes is:

• A) Cash-flow bailout.
• B) Cash-flow break-even.
• C) Net present value (NPV).
• D) Discounted payback.
• E) Accounting (book) rate of return (ARR), based on average investment over the life of each project.

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Definitions:

IRA Distribution

An IRA distribution is a withdrawal from an Individual Retirement Account, which can be subject to taxes and, in some cases, early withdrawal penalties.

Nondeductible Contributions

Contributions made to certain retirement accounts that do not qualify for a tax deduction at the time of deposit.

Taxable Portion

This is the part of any income or financial gain that is subject to taxation according to current tax laws.

Traditional IRA

An individual retirement account allowing individuals to direct pre-tax income towards investments that can grow tax-deferred until retirement withdrawals.