Between projects A and B,project A will be considered a superior financial undertaking if it has:
A)A shorter payback period than project B.
B)A lower average rate of return than project B.
C)A lower net present value than project B.
D)A longer payback period than project B.

Question

Quizplus · Accepted Answer

A shorter payback period indicates that the initial investment will be recovered sooner, which means less risk and opportunity for reinvestment. Therefore, project A is a better financial undertaking if it has a lower payback period than project B. Option B and C are incorrect because a lower average rate of return and lower net present value imply that the project will generate fewer profits. Finally, option D is incorrect because a longer payback period means that it takes longer to recover the initial investment resulting in higher risk and delays.

Between Projects a and B,project a Will Be Considered a Superior