The New Blues Co. is considering two projects. Project A consists of building a wholesale book outlet on lot #169 of the Minglewood Retail Center. Project B consists of building a sit-down
Restaurant on lot #169 of the Minglewood Retail Center. When trying to decide whether or build the
Book outlet or the restaurant, management should rely most heavily on the analysis results from the
_____ method of analysis.
A) Proﬁtability index.
B) Internal rate of return.
C) Payback.
D) Net present value.
E) Accounting rate of return.

Question

Quizplus · Accepted Answer

The most appropriate analysis method to use in this situation is the net present value (NPV) method. This is because the NPV takes into account the time value of money and considers all future cash flows associated with each project. A positive NPV indicates that a project is expected to generate more cash inflows than outflows, which means that it will likely add value to the company. Therefore, management should compare the NPV for each project and choose the one with the higher value.