Project Sigma requires an investment of $1 million and has a NPV of $10. Project

Question

Project Sigma requires an investment of $1 million and has a NPV of $10. Project Delta requires an investment of $500,000 and has a NPV of $150,000. The projects involve unrelated new product lines.

A) Both projects should be accepted because they have positive NPV's.

B) Neither project should be accepted because they might compete with one another.

C) Only project Delta should be accepted. Alpha's NPV is too low for the investment.

D) The company should look at other investment criteria, not just NPV.

Explanation / Answer

While evaluating projects with NPV statistic, project with higher NPV will be selected as it increases firm value. Here, investment in delta is lower and NPV is higher. This is very good investment opportunity than sigma, which has higher investment with lower NPV.

Hence, correct option is (C).

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.