-You Are Considering Two Independent Projects with the Following Cash

question 78

Multiple Choice

-You are considering two independent projects with the following cash flows.The required return for both projects is 16 percent.Given this information,which one of the following statements is correct?

• A) You should accept Project A and reject Project B based on their respective NPVs.
• B) You should accept Project B and reject Project A based on their respective NPVs.
• C) You should accept Project A and reject Project B based on their respective IRRs.
• D) You should accept Project B and reject Project A based on their respective IRRs.
• E) You should accept both projects based on both the NPV and IRR decision rules.

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Definitions:

Line Segment AB

The part of a line that is bounded by two distinct end points, and contains every point on the line between its endpoints.

Overhead

Overhead refers to the ongoing business expenses not directly tied to creating a product or service but necessary for the business's operations, such as rent, utilities, and salaries.

Law of Diminishing

Refers to the Law of Diminishing Returns, which states that adding more of one factor of production, while holding others constant, will at some point yield lower per-unit returns.

Marginal Returns

The change in output resulting from a one-unit increase in a particular input, while holding other inputs constant.