PEI Corp.'s management has determined that two independent projects have the following NPV:Project A NPV $5,000Project B NPV ($4,800)Which best describes the correct managerial decision given the information above?
A)Decline both projects since both projects must be NPV positive if they are independent.
B)Accept both projects since the NPV of A will offset any losses resulting from project B.
C)Accept A and decline B since A has a positive NPV and B has a negative NPV.
D)In order to decide between these independent projects we need the IRR of each project.

Question

Quizplus · Accepted Answer

The correct managerial decision given the information above is to accept Project A and decline Project B since Project A has a positive NPV and Project B has a negative NPV. It is not necessary for both projects to be NPV positive if they are independent. Accepting both projects is not a viable option since the negative NPV of Project B will not be offset by the positive NPV of Project A. The IRR is not necessary to make this decision.

PEI Corp's Management Has Determined That Two Independent Projects Have the the Following