Question

Question 9 1 pts (9) Consider three mutually exclusive projects: Project A, Project B and Project C. The NPV of these projects are given as: Project A 37,000 Project B 28,000 Project C 14.000 NPV The project costs are not the same. Which of the following is all three projects will be rejected. only Project A will be chosen. all three projects will be chosen. only Project will be chosen. both Project A and B will be chosen

Answer 1

Solution:

Question 9:

In case of mutually exclusive projects, only one of the projects is chosen for making an Investment.

In case of mutually exclusive projects, the decision for the choice of a project is based on NPV. The project with the highest NPV is chosen.

As per the information given in the question, Project A has the highest NPV of $ 37,000.

Thus in the given case, Project A with the highest NPV should be chosen.

The solution is Option 2 : Only Project A will be chosen.

Question 10:

The relationship between the cost of Capital and the NPV can be explained as follows :

As the cost of capital of a project increases, the NPV of the project decreases.

As the cost of capital of a project decreases, the NPV of the project increases.

Thus the NPV of a project will decrease if the cost of capital increases.

The solution is Option 3 : decrease