You are given a job to make a decision on project X, which is composed of three independent projects A, B, and C which have NPVs of + $70, -$40 and + $100, respectively. How would you go about making the decision about whether to accept or reject the project?
A) Accept the firm's joint project as it has a positive NPV
B) Reject the joint project
C) Break up the project into its components: accept A and C and reject B
D) None of the above

Question

Quizplus · Accepted Answer

We should break up the project into its components and accept projects A and C while rejecting project B. This is because projects A and C have positive NPVs, while project B has a negative NPV. By accepting projects A and C and rejecting project B, we will maximize the overall NPV of the project.

You Are Given a Job to Make a Decision on Project