Isaac has analyzed two mutually exclusive projects of similar size and has compiled the following information based on his analysis.Both projects have 3- year lives. Isaac has been asked for his best recommendation given this information.His recommendation should be to accept:
A)both projects.
B)project B because it has the shortest payback period.
C)project B and reject project A based on their net present values.
D)project A and reject project B based on their average accounting returns.
E)neither project.

Question

Isaac has analyzed two mutually exclusive projects of similar size and has compiled the following information based on his analysis.Both projects have 3- year lives.  Isaac has been asked for his best recommendation given this information.His recommendation should be to accept:
A)both projects. 
B)project B because it has the shortest payback period. 
C)project B and reject project A based on their net present values. 
D)project A and reject project B based on their average accounting returns. 
E)neither project.

Quizplus · Accepted Answer

Isaac has analyzed both projects based on their net present values (NPV) and found that project B has a higher NPV than project A. This means that project B has a higher value in today's dollars than project A. If Isaac recommends accepting project B and rejecting project A, the company would be able to maximize its value. Therefore, the best choice would be to accept project B and reject project A based on their net present values.

Isaac Has Analyzed Two Mutually Exclusive Projects of Similar Size