A Firm Is Considering Several Mutually Exclusive Investment Opportunities

question 16

Multiple Choice

A firm is considering several mutually exclusive investment opportunities. The best way to choose between them is which of the following?

• A) profitability index
• B) payback period
• C) net present value (NPV)
• D) internal rate of return (IRR)

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Definitions:

Preference Shares

Equity securities that have preferential rights compared to common shares, often regarding dividends and asset distribution.

Consolidated Retained Earnings

The cumulative earnings or profits of a corporation and its subsidiaries after dividends have been paid out, as shown on the consolidated balance sheet.

Unrealized Intercompany Profits

Profits resulting from transactions between companies within the same group that have not yet been realized outside of the group.

Equity Method

A method of accounting for an investment where the investor recognizes income based on its share of the investee's profits or losses, adjusting the carrying amount of the investment.