Question

Suppose project A has an NPV of $50 million and project B has an NPV of $70 million and that the projects are independent of each other and there is no capital rationing. Which one of the following statements is true? a. Only project A should be accepted. b. Only project B should be accepted. c. Neither project A nor project B should be accepted. d. We must know the cost of capital before determining which project should be accepted. e. Both projects A and B should be accepted.

Answer 1

Option e. Both projects A and B should be accepted. The projects are independent of each other, so accepting both projects will maximize the overall value of the investments.