A Division Manager Is Choosing Between Two Mutually Exclusive Projects

question 39

Multiple Choice

A division manager is choosing between two mutually exclusive projects. The company requires any project to earn at least 12%. The manager believes that cash inflows from the project can be reinvested at the rate of 12%. Which project will the manager likely choose?

• A) Project B
• B) Project A
• C) both Projects A and B
• D) neither Project A nor B

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Definitions:

Rate of Return

The increase or decrease in value of an investment during a specific time frame, represented as a proportion of the investment's initial cost.

Compounded Annually

Interest on an investment is calculated once per year and added to the principal, allowing the investment to grow at an increasing rate.

Investments

Resources allocated with the intention of generating future benefits, such as income or revenue growth.

Graph

A visual representation of data, showing relationships between two or more variables typically on two axes.