Project a Has an Initial Cost of $628,000 and Project

question 43

Multiple Choice

Project A has an initial cost of $628,000 and Project B has an initial cost of $894,000.Both projects have a positive NPV.Which one of these would be your best next step to determine which project to accept assuming the projects are mutually exclusive?

• A)Compute the discounted payback for both projects and select the project with the shortest payback period
• B)Compute the IRR for each project and select the project with the higher IRR value
• C)Compute the AAR for both projects and accept the project with the higher AAR value
• D)Compute the PI of both projects and select the project with the lower PI value
• E)Compute the IRR on the differences obtained by subtracting Project A's cash flows from those of Project B

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Definitions:

Master Budget

The master budget is a comprehensive financial planning document that includes all of a company's budgeted financial statements and operating plans for a specific period.

Raw Materials

The basic materials and components used in the production processes of manufacturing goods.

Finished Goods Inventory

The completed products that are ready for sale but have not yet been sold.

Cash Collections

The process of gathering all monies owed to a company by its customers, reflecting inflow of cash.