A Financial Manager Is Considering Two Projects,A and B; Both

question 58

Multiple Choice

A financial manager is considering two projects,A and B; both are expected to add $5 million to profits.Project A is expected to add $5 million to profits this year,while Project B is expected to add $1 million to profits each year over the next five years.Which of the following statements is MOST correct?

• A)The manager should select Project A because it maximizes profits.
• B)The manager should select the project that maximizes long-term profits,not just one year of profits.
• C)The manager should select Project A,of course.
• D)The manager should select the project that causes shareholder wealth to increase the most,which could be A or B.

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Definitions:

Privatize Gains

The concept of transferring profits or benefits from public to private ownership, often criticized for benefiting a select few at the expense of the broader public.

Government Guarantees

Assurances provided by the government to back loans, investments, or other financial transactions.

Regulatory Capture

A form of government failure that occurs when a regulatory agency tasked with acting in the public's interest instead acts in favor of the commercial or special interests of the industry or sector it is charged with regulating.

Global Competitiveness

The ability of a country or company to compete effectively and successfully in international markets.