2D3A FOGGY PRODUCTS IS EVALUATING TWO MUTUALLY EXCLUSIVE PROJECTS, ON...

342.

CSO: 2D3a

LOS: 2D3a

Foggy Products is evaluating two mutually exclusive projects, one requiring a $4 million

initial outlay and the other a $6 million outlay. The Finance Department has performed

an extensive analysis of each project. The chief financial officer has indicated that there

is no capital rationing in effect. Which of the following statements are correct?

I.

Both projects should be rejected if their payback periods are longer than the

company standard.

II.

The project with the highest Internal Rate of Return (IRR) should be selected

(assuming both IRRs exceed the hurdle rate).

III. The project with the highest positive net present value should be selected.

IV. Select the project with the smaller initial investment, regardless of which

evaluation method is used.

a.

I, II, and IV only.

b.

I, II and III only.

c.

I and III only.

d.

II and III only.