Southern Chicken is considering two projects.Project A consists of creating an outdoor eating area on the unused portion of the restaurant's property.Project B would use that outdoor space for creating a drive-thru service window.When trying to decide which project to accept,the firm should rely most heavily on which one of the following analytical 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 most appropriate analytical method to use in this scenario is the net present value (NPV) method. This is because it takes into account the time value of money and measures the present value of future cash flows that each project generates. The project with a higher NPV will provide the most value to the firm. The profitability index, internal rate of return, payback, and accounting rate of return do not factor in the time value of money and are not as comprehensive as the NPV method.

Southern Chicken Is Considering Two Projects