Project a Is Expected to Generate Positive Cash Flow of $1

question 140

Multiple Choice

Project A is expected to generate positive cash flow of $1 million in 10 years while Project B is expected to generate $500,000 in 5 years.Therefore

• A) Project A is preferred because shareholder value is based on cash flow.
• B) Project B is preferred because its cash flow is expected to be received sooner than the cash flow from Project A.
• C) Both projects have equal value because they average $100,000 per year.
• D) Project B may be preferred to Project A if the opportunity cost of money is high enough.

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Definitions:

Financial Performance

A measurement of how well a company can use assets from its primary mode of business and generate revenues.

Companies In The Industry

Firms that operate within a specific sector, contributing to and competing in the market dynamics of that field.

Ratio Analysis

A quantitative analysis of information contained in a company’s financial statements, used to evaluate performance, liquidity, profitability, and solvency.