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.