A construction firm is evaluating two value-adding projects. The first project deals with building access roads to a new terminal at the local airport. The second project is to build a parking garage on a piece of land that the firm owns adjacent to the airport.
-If both projects are positive-NPV projects, then the firm should
A) accept both projects because they are independent projects.
B) select the higher NPV project because they are mutually exclusive.
C) accept both projects because they are contingent projects.
D) Not enough information is given to make a decision.

Question

Quizplus · Accepted Answer

Projects are considered independent if the cash flows of one are not affected by the acceptance of the other. Since both projects have positive NPVs and there's no indication their outcomes are dependent on each other, the firm should accept both to maximize value.

A Construction Firm Is Evaluating Two Value-Adding Projects