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Corporate Finance · Quiz 1 · 23 Feb 2025 · January 2025 term

Question 24: Sahitya Inc. is considering two different projects, A an…

Question 24

+4 marksOne correct option

Sahitya Inc. is considering two different projects, A and B, for investment and can choose at most one project to invest in. Project A costs Rs 12,000 and is expected to generate Rs 5,000 in year one and Rs 10,000 in year two. Project B costs Rs 10,000 and is expected to generate Rs 5,000 in year one, Rs 4,000 in year two, Rs 3,000 in year three, and Rs 2,000 in year four. Sahitya Inc.’s required rate of return for these projects is 5%. Suppose at most one project can be chosen. Which of the following is true?

  1. A

    Sahitya Inc. should prefer Project B as it has a higher net present value than Project A.

  2. B

    Sahitya Inc. should prefer Project A as it has a higher net present value than Project B.

  3. C

    Sahitya Inc. is indifferent between Project A and Project B as both have the same net present value.

  4. D

    Sahitya Inc. should not invest in either projects A or B as both have a negative net present value.

Show answer

Correct answer

  • A

    Sahitya Inc. should prefer Project B as it has a higher net present value than Project A.

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Question 24 of 25 in the IIT Madras BS Corporate Finance (Corporate Finance) Quiz 1 paper sat on 23 Feb 2025, in the January 2025 term (IIT M DEGREE AN EXAM QDB2 23 Feb 2025). It carries 4 marks.

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