You Are Considering the Following Two Mutually Exclusive Projects

question 19

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 profitability index
• C) Project B; because it has the higher profitability index
• 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:

Lemon

In the context of markets, a product that is found to be defective only after it has been bought, often used in reference to used cars.

Accord

An agreement, especially one between nations or groups, which outlines the terms and conditions of a mutual understanding or settlement.

Risk-neutral

A condition or attitude where an individual or entity is indifferent to risk when making investment decisions, caring only about the expected outcome without concern for the variability of returns.

Risk-loving

Refers to individuals or entities that prefer or are willing to take more risks, often for the possibility of higher returns.