Two Projects Being Considered by a Firm Are Mutually Exclusive

question 82

Multiple Choice

Two projects being considered by a firm are mutually exclusive and have the following projected cash flows:

Which project(s) should be accepted?

• A) A, because it has a shorter payback period.
• B) B, because it has a higher IRR.
• C) Indifferent, because the projects have equal IRRs.
• D) Include both in the capital budget, since the sum of the cash inflows exceeds the initial investment in both cases.
• E) Choose neither, since their NPVs are negative.

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Definitions:

Rent-seeking Activities

Economic actions taken by individuals or groups to earn income by capturing wealth through manipulation or exploitation of the political environment, rather than through productive economic activities.

Political Process

The mechanism through which public decisions are made, encompassing election campaigns, legislative procedures, and public policy formulation.

Economic Prosperity

A state of wealth or good fortune characterized by a high level of income, ample employment opportunities, and strong economic growth.

Congressional Staffers

Individuals who work directly for members of Congress or congressional committees, assisting in legislative and administrative duties.