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As vice president in charge of transport systems for XYZ International Deliveries, you are evaluating the...

As vice president in charge of transport systems for XYZ International Deliveries, you are evaluating the financial advisability of two different projects. Project 1 is the transportation of cargo from the United States to points in South America. For this project, you estimate a net cash flow of -$3,980,000 in year 1. Project 2 is the transportation of produce from Mexico to various states throughout the US. For the second project, you estimate a net cash flow of -$2,765,000 in year 1. If the company can only undertake one project this year (but does not have to take on any project), which project will you recommend for XYZ International Deliveries to take on?


a) Neither Project

b) Only Project 1

c) Only Project 2

d) Both Projects

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Answer #1

Option (a).

Net cash flow is negative in both projects. In absence of cash flow data for future years, we have to take the net cash flow in year 1 as the performance measure. Since both projects have negative net cash flow in year 1, and the company need not compulsorily take up any of the projects, the company should not take either of the projects.

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