Canada Corp.'s management has determined that two mutually exclusive projects have the following NPV:Project A NPV $5,000Project B NPV $6,000Which best describes the correct managerial decision given the information above?
A)Decline both projects since both projects must have an NPV greater than $10,000.
B)Accept both projects since the NPV of A will offset any potential losses resulting from B.
C)Accept A and decline B since they both have positive NPVs.
D)Accept B, and reject A, since project B has a lower NPV than project A.

Question

Quizplus · Accepted Answer

Project B should be accepted over Project A because it has a higher NPV ($6,000 vs. $5,000), indicating it is expected to add more value to the company. Since the projects are mutually exclusive, only one can be chosen.