Table 12.6 Yong Importers, an Asian Import Company, Is Evaluating Two Mutually

question 100

Multiple Choice

Table 12.6
Yong Importers, an Asian import company, is evaluating two mutually exclusive projects, A and B. The relevant cash flows for each project are given in the table below. The cost of capital for use in evaluating each of these equally risky projects is 10 percent.
-Which project should be chosen on the basis of the normal NPV approach? (See Table 12.6)

• A) Project A because its NPV is higher
• B) Project B because its NPV is higher
• C) Project A because its IRR is higher
• D) Project B because its IRR is higher

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Definitions:

Gross Profit

The difference between sales revenue and the cost of goods sold, before deducting overhead, payroll, taxation, and interest payments.

Net Profit

The remaining income after all expenses, taxes, and costs have been subtracted from total revenue.

Value Chain

A series of activities by a firm that adds value to its products or services from conception to delivery.

Primary Processes

The core activities that directly contribute to the production of goods or provision of services in an organization, such as manufacturing, assembly, and service delivery.