Project A is expected to generate positive cash flow of $1 million in 10 years while Project B is expected to generate $500,000 in 5 years.Therefore
A) Project A is preferred because shareholder value is based on cash flow.
B) Project B is preferred because its cash flow is expected to be received sooner than the cash flow from Project A.
C) Both projects have equal value because they average $100,000 per year.
D) Project B may be preferred to Project A if the opportunity cost of money is high enough.

Question

Quizplus · Accepted Answer

The choice between the two projects depends on the opportunity cost of money. If the opportunity cost of money is high enough, it may be more beneficial to choose Project B as it generates cash flow sooner. However, if the opportunity cost of money is lower, then Project A may be preferred as it generates a higher cash flow over a longer period of time. Therefore, the best choice between the two options is D.

Project a Is Expected to Generate Positive Cash Flow of $1