Two Firms Evaluated the Same Capital Budgeting Project to Determine

question 15

Multiple Choice

Two firms evaluated the same capital budgeting project to determine whether to purchase it.The CFO of Anchor Weights Corporation (AWC) reported that she determined that the project's internal rate of return equals 9 percent, and she recommended that the project be purchased.The CFO of Sectional Spas Incorporated (SSI) simply reported that the project was unacceptable to his firm when he evaluated it using one of the capital budgeting techniques that considers the time value of money.Given this information, which of the following statements is correct?

• A)The net present value of the project must be positive for both firms.
• B)If the SSI's CFO computes the IRR for the project, he will find that it is less than 9 percent for his company.
• C)AWC's CFO must have used the traditional payback period method to evaluate the project.
• D)If the project is acceptable (unacceptable) to one firm, it must be acceptable (unacceptable) to both firms.As a result, one of the CFOs made a mistake when evaluating the project.
• E)SSI's must have a required rate of return that is greater than 9 percent.

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Definitions:

Arizona

A state located in the southwestern region of the United States, known for its desert climate and landmarks like the Grand Canyon.

Distribution Center

A facility from which goods are distributed to stores or customers, optimizing the supply chain by consolidating shipments.

Dallas

A major city in the state of Texas, known for its cultural activities, historical significance, and economic contributions.

Time Constraint

A specific limitation or deadline within which an action, task, or project must be completed.