Matt Is Analyzing Two Mutually Exclusive Projects of Similar Size

question 87

Multiple Choice

Matt is analyzing two mutually exclusive projects of similar size and has prepared the following data.Both projects have 5 year lives. $$\begin{array} { l l l } & \frac { \text { Project } \mathrm { A } } { } & \frac { \text { Project B } } { } \\\text { Net present value } & \$ 15,090 & \$ 14,693 \\\text { Payback period } & 2.76 \text { years } & 2.51 \text { years } \\\text { Required return } & 8.3 \% & 8.0 \%\end{array}$$ Matt has been asked for his best recommendation given this information.His recommendation should be to accept:

• A)project B because it has the shortest payback period.
• B)both projects as they both have positive net present values.
• C)project A and reject project B based on their net present values.
• D)project B and reject project A based on other criteria not mentioned in the problem.
• E)project B and reject project A based on both the payback period and the average accounting return.

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Definitions:

Commercial Unit

A term used in law referring to goods or property that are considered a single whole for purposes of sale or lease, often due to their interconnectedness or the context of their use.

Bales of Hay

Compacted, bound, and often wrapped bundles of hay used for feeding livestock, as bedding, or for agricultural purposes.

Accepted

Acknowledgment or agreement to the terms of an offer, thereby creating a binding contract.

Installment Delivery

The distribution of goods to a buyer in several sequential parts, each of which is accepted and paid for by the buyer over time as stipulated in a contract.