Uptown Developers is considering two projects.Project A consists of building a wholesale book outlet on the firm's downtown lot.Project B consists of building a sit-down restaurant on that same lot.The lot can only accommodate one of the projects.When trying to decide whether to build the book outlet or the restaurant,management should rely most heavily on the analysis results from which one of these methods?
A)Profitability index
B)Internal rate of return
C)Payback
D)Net present value
E)Accounting rate of return

Question

Quizplus · Accepted Answer

The net present value (NPV) method is the most appropriate for comparing mutually exclusive projects, as it calculates the present value of all future cash flows (both inflows and outflows) of each project and compares them to determine which one generates the highest value. Therefore, management should rely most heavily on the analysis results from the NPV method to decide whether to build the book outlet or the restaurant.

Uptown Developers Is Considering Two Projects