Asked by Nourhan Ashraf on Jul 02, 2024
PEI Corp.'s management has determined that two independent projects have the following NPV:Project A NPV $5,000Project B NPV ($4,800) Which best describes the correct managerial decision given the information above?
A) Decline both projects since both projects must be NPV positive if they are independent.
B) Accept both projects since the NPV of A will offset any losses resulting from project B.
C) Accept A and decline B since A has a positive NPV and B has a negative NPV.
D) In order to decide between these independent projects we need the IRR of each project.
Independent Projects
Investment opportunities that do not affect the cash flows or profitability of other projects considered by an entity.
Managerial Decision
The process by which management responds to opportunities and threats by analyzing options and making determinations about specific organizational goals and courses of action.
NPV
NPV (Net Present Value) is a calculation used to assess the profitability of an investment by discounting future cash flows back to their present value.
- Master the principles and analytical techniques of net present value (NPV) for project investment decision-making.
Learning Objectives
- Master the principles and analytical techniques of net present value (NPV) for project investment decision-making.
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