A division manager is choosing between two mutually exclusive projects. The company requires any project to earn at least 12 percent.The manager believes that cash inflows from the project can be reinvested at the rate of 12 percent.Which project will the manager likely choose?

Question

A division manager is choosing between two mutually exclusive projects.  The company requires any project to earn at least 12 percent.The manager believes that cash inflows from the project can be reinvested at the rate of 12 percent.Which project will the manager likely choose?

Quizplus · Accepted Answer

Since the required rate of return is 12 percent and the cash inflows from the project can be reinvested at the same rate, the best choice would be the project with the higher net present value. Based on the information given, Project A has a higher net present value than Project B, so the manager would likely choose Project A.

A Division Manager Is Choosing Between Two Mutually Exclusive Projects