Matt Is Analyzing Two Mutually Exclusive Projects of Similar Size

question 44

Multiple Choice

Matt is analyzing two mutually exclusive projects of similar size and has prepared the following data.Both projects have 5 year lives. $\begin{array}{|l|l|l|}\hline -& \text { Project } \mathrm{A} & \text { Project } \mathrm{B} \\\hline \text { Net present value } & £ 15,090 & £ 14,693 \\\hline \text { Payback period } & 2.76 \text { years } & 2.51 \text { years } \\\hline \text { Average accounting return } & 9.3 \% & 9.6 \% \\\hline \text { Required return } & 8.3 \% & 8.0 \% \\\hline \text { Required AAR } & 9.0 \% & 9.0 \% \\\hline\end{array}$ Matt has been asked for his best recommendation given this information.His recommendation should be to accept:

• A)project B because it has the shortest payback period.
• B)both projects as they both have positive net present values.
• C)project A and reject project B based on their net present values.
• D)project B and reject project A based on their average accounting returns.
• E)project B and reject project A based on both the payback period and the average accounting return.

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Definitions:

Restless

A feeling of being unable to stay still or at ease, often leading to fidgeting or constant movement due to anxiety or boredom.

Discontent

A feeling of dissatisfaction or unhappiness with one's circumstances or environment.

Five-Need Hierarchy

A reference to Maslow’s hierarchy of needs, which outlines five levels of human needs from basic (physiological) to higher order (self-actualization).

Innate

Referring to qualities, abilities, or characteristics that are present from birth and not significantly influenced by external factors or learned experiences.