Final answer:
The correct answer is option a. Investment Opportunity B is a better investment than Investment Opportunity A.
Step-by-step explanation:
In comparing two investment opportunities, Moore Company is considering Investment Opportunity A with a net present value (NPV) of $24,900 and Investment Opportunity B with an NPV of $26,700. Based on the net present value criterion alone, Investment Opportunity B is a better investment than Investment Opportunity A because it provides a higher NPV, implying a greater expected return over the cost of the investment.
Present discounted value
is a critical concept in making these judgments. It allows firms to compare present costs with the present value of future benefits, helping to ensure that resources are allocated efficiently. When considering the cost of financial capital versus the return to society, firms adjust the effective rate of return on their investments to reflect the real value to society, which can potentially alter the attractiveness of investments.
Therefore, additional information such as risk factors, investment time horizons, and strategic fit with company objectives might be needed to fully determine which investment opportunity is the best choice for Moore Company.