There are two projects, A and B (with the same risk involved), with a rate of return of 10 percent and X percent, respectively, if under normal circumstances, project B is selected. What could be the rate of return of Project B?
Answer & explanation
Correct answer: option 4
The correct answer is option 4- 12 percent.
Since both projects have the same risk, under normal financial decision-making, the project with the higher rate of return would be selected. Project A has a 10% rate of return. Project B is selected over Project A, so Project B must have a higher rate of return than 10%.
Among the options 12% is greater than 10%. So Project B is selected because it offers a better return for the same risk.