The decision rule for net present value is to:
a. Accept all projects with cash inflows exceeding the initial cost.
b. Accept all projects with positive net present values.
c. Reject all projects lasting longer than 10 years.
d. Reject all projects with rates of return exceeding the opportunity cost of capital.
The decision rule for net present value is to:
a. Accept all projects with cash inflows exceeding the initial cost.
b. Accept all projects with positive net present values.
c. Reject all projects lasting longer than 10 years.
d. Reject all projects with rates of return exceeding the opportunity cost of capital.
Related questions
Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.
| Time: | 0 | 1 | 2 | 3 |
| Project A Cash Flow | -29,000 | 19,000 | 39,000 | 10,000 |
| Project B Cash Flow | -39,000 | 19,000 | 29,000 | 59,000 |
Use the PI decision rule to evaluate these projects; which one(s) should be accepted or rejected?
accept A, reject B - A
reject A, accept B - B
accept neither A nor B - C
accept both A and B - D
