The acceptance criterion for independent projects is to choose the project with:
A)the highest net present value.
B)the highest internal rate of return for mutually exclusive projects.
C)the lowest internal rate of return for independent projects.
D)the lowest net present value.

Question

Quizplus · Accepted Answer

For independent projects, the acceptance criterion is to choose the project with the highest net present value (NPV). NPV takes into account the time value of money and calculates the present value of future cash flows. Since the goal of a business is to maximize value for its shareholders, choosing the project with the highest NPV will help achieve that goal. Option B is incorrect because the internal rate of return (IRR) is used to compare mutually exclusive projects, where only one project can be chosen. Option C is incorrect because choosing the project with the lowest IRR for independent projects would not make financial sense. Option D is incorrect because choosing the project with the lowest NPV does not align with the goal of maximizing shareholder value.

The Acceptance Criterion for Independent Projects Is to Choose the Project