Projects a and B Have Identical Expected Lives and Identical

question 8

Multiple Choice

Projects A and B have identical expected lives and identical initial cash outflows (costs) .However,most of one project's cash flows come in the early years,while most of the other project's cash flows occur in the later years.The two NPV profiles are given below:Which of the following statements is correct?

• A)More of Project A's cash flows occur in the later years.
• B)More of Project B's cash flows occur in the later years.
• C)We must have information on the cost of capital in order to determine which project has the larger early cash flows.
• D)The NPV profile graph is inconsistent with the statement made in the problem.

---

Definitions:

Accounting

The process of recording, classifying, summarizing, and interpreting financial transactions to provide information that is useful in making business decisions.

Financial Statements

Reports summarizing a company's financial performance and position, including income statement, balance sheet, and cash flow statement.

Depreciation

The process of allocating the cost of a tangible asset over its service life, reflecting the decrease in value over time.

Land's Cost

The purchase price of land plus any additional costs spent to put it into use, such as legal fees and land grading expenses.