Isaac has analyzed two mutually exclusive projects of similar size and has compiled the following information based on his analysis.Both projects have 3- year lives. Isaac has been asked for his best recommendation given this information.His recommendation should be to accept:
A)both projects.
B)project B because it has the shortest payback period.
C)project B and reject project A based on their net present values.
D)project A and reject project B based on their average accounting returns.
E)neither project.

Question

Isaac has analyzed two mutually exclusive projects of similar size and has compiled the following information based on his analysis.Both projects have 3- year lives.  Isaac has been asked for his best recommendation given this information.His recommendation should be to accept:
A)both projects. 
B)project B because it has the shortest payback period. 
C)project B and reject project A based on their net present values. 
D)project A and reject project B based on their average accounting returns. 
E)neither project.

Quizplus · Accepted Answer

Based on the information provided, Isaac's best recommendation would be to accept project B and reject project A based on their net present values. This approach considers the time value of money, and the net present value method shows the difference between the present value of cash inflows and the present value of cash outflows. Choosing the project with the highest net present value generally indicates the best financial return. Therefore, project B should be accepted, while project A should be rejected.

Isaac Has Analyzed Two Mutually Exclusive Projects of Similar Size