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.
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.
The correct answer is e. Both projects A and B should be accepted.
Since both projects have positive Net Present Values (NPVs), accepting both projects would maximize the value for the company. As they are independent of each other, there is no reason to give preference to one project over the other. Thus, accepting both projects would be the optimal choice in this scenario.