Norine Benson is studying for the Level I CFA examination and is having difficulty with the broader concepts of capital budgeting. Her study partner, Henri Manz, tests her understanding by asking her to identify which of the following statements is most accurate? A) Replacement decisions involve mutually exclusive projects. B) For mutually exclusive projects, the decision rule is to pick the project that has the highest net present value (NPV). C) If the change in current liabilities is greater than the change in current assets, it means that additional financing was needed and there is a cash outflow. D) An analyst can ignore inflation since price level expectations are built into the weighted average cost of capital (WACC).
This has been discussed before. I am guessing you picked B. B is wrong because they can both be negative, one just less so. A is right.
Someone else also disagreed with B at that time because they said it should be based on equivalent annuity or whatever that calc is in the event that project have unequal lives.