ABC Ltd is considering two possible projects but can only raise enough funds to proceed with one of them. Investment appraisal techniques have been used and the following results found:
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Project A
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Project B
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Payback period
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3.5 years
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2.8 years
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Rate of return
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16%
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14%
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NPV
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+$850000
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+$710000
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Which of the following is the most logical interpretation of the results?
a. Project A should be selected because it will yield the highest NPV.
b. Project A should be selected as it gives the longest payback period.
c. Project B should be selected because the payback period is lower.
d. The rate of return is the most meaningful investment appraisal technique and hence Project A should be selected.