Q6 Question : There are two projects:

* Project A has an investment of $ 1,000,000 and NPV of $ 100,000

* Project B has initial investment of $ 1,200,000; net cash inflows of $

2,000,000 and net cash outflows of $ 1,900,000

Which project should be selected if Net Present Value criteria is used for

selection?

1. Project A

2. Project B

3. Information in question not enough to determine which project to be selected

 4. Either project A or project B can be selected 

6. Correct Choice: 4

Justification:

Project A NPV = $ 100,000

Project B NPV = $ 2,000,000 - $ 1,900,000 = $ 100,000

So, both projects have same NPV - hence either project may be selected using the NPV method.