Projects a and B Are Mutually Exclusive

question 112

Multiple Choice

Projects A and B are mutually exclusive. Project A costs $10,000 and is expected to generate cash inflows of $4,000 for four years. Project B costs $10,000 and is expected to generate a single cash flow in year 4 of $20,000. The cost of capital is 12 percent. Which project would you accept and why?

• A) Project B because it has the higher NPV
• B) Project B because it has the higher IRR
• C) Project A because it has the higher NPV
• D) Project A because it has the higher IRR

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Definitions:

Inventoriable Costs

Costs that are included in the value of inventory and recognized as cost of goods sold when the inventory is sold.

Cost of Goods

The immediate expenses incurred in the production of a company's sold goods, covering both the cost of labor and materials used.

Consigned Goods

Goods that are given to a third party to sell, but ownership remains with the supplier until sold.

Fiscal Period

A specific time frame used for accounting purposes, typically a year, over which a company reports its financial performance.