Worcester Corp Is Considering Two Mandated Projects

question 67

Multiple Choice

Worcester Corp is considering two mandated projects. They would serve the same purpose and be mutually exclusive. The present value of total costs over a five year period for Project November is $50,000. The present value of total costs over a 4 year period for project December is $40,000. The company uses a discount rate of 9%. Which project should it choose and why?

• A) November because the NPV is higher.
• B) November because EAC is higher.
• C) December because it has a shorter life.
• D) December because it has lower EAC.

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Definitions:

Invoice

a document issued by a seller to a buyer that specifies the products or services provided and the amount due for payment.

Credited

Recognized or accounted for, often referring to the addition of funds to an account.

Selling Price

The price at which a product or service is sold to the purchaser, often determined by the cost of production, market demand, and competition.

Cost

The amount of money required to purchase something or the expense associated with creating a product or service.