You Are Considering the Following Two Mutually Exclusive Projects

question 14

Multiple Choice

You are considering the following two mutually exclusive projects. The required return on each project is 14 percent. Which project should you accept and what is the best reason for that decision?

• A) Project A; because it pays back faster
• B) Project A; because it has the higher internal rate of return
• C) Project B; because it has the higher internal rate of return
• D) Project A; because it has the higher net present value
• E) Project B; because it has the higher net present value

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Definitions:

Assets

Resources owned by individuals or companies expected to provide future benefits, including cash, properties, and investments.

Creditors

Creditors are individuals or entities to whom money is owed by debtors or borrowers.

Primary Objective Test

A rule that states a writing is not needed for enforcement if the promise to pay another party’s debt is made to obtain a gain for the guarantor.

Guarantor

The promisor.