Suppose Your Firm Is Considering Two Mutually Exclusive,required Projects with the Cash

question 88

Multiple Choice

Suppose your firm is considering two mutually exclusive,required projects with the cash flows shown as follows.The required rate of return on projects of both of their risk class is 10 percent,and the maximum allowable payback and discounted payback statistic for the projects are two and a half and three and a half years,respectively.
Use the IRR decision rule to evaluate these projects; which one(s) should be accepted or rejected?

• A)Accept both A and B
• B)Accept neither A nor B
• C)Accept A, reject B
• D)Reject A, accept B

---

Definitions:

Prospective Capacity

Refers to the expected or future ability of a company or economy to produce goods or services.

Common Size Balance Sheet

A financial statement that presents all items as percentages of a common base figure, such as total assets, facilitating comparison across time and companies.

Total Assets

The sum of all assets owned by an entity, encompassing both current and non-current assets, and used in determining a company's financial health.

Owners' Equity

The residual interest in the assets of the enterprise after deducting liabilities, representing the owner's claim against the company's resources.