A Firm Must Choose Between Two Projects, X and Y

question 47

Multiple Choice

A firm must choose between two projects, X and Y. Project X has the highest net present value, but project Y has the highest profitability index. The firm should choose project Y if:

• A) the firm is a risk seeker.
• B) the firm is risk averse.
• C) the firm has substantial investment resources.
• D) the firm has limited investment resources.

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Definitions:

Direct Non-Controlling Interest

A proportional interest in a subsidiary not held by the parent company, representing a share in the equity and profits of the subsidiary.

Retained Earnings

The portion of net income not distributed as dividends but retained by the company to be reinvested in its core business or to pay debt.

Limited

Describes a form of company structure that legally protects its shareholders' liability to the amount of capital they invested.