A firm is evaluating two projects: Project A with a 7% return and Project B with a 4% return. If the interest rate is 5%, which project should the firm choose?

• A. Project B, because it has a lower return.
• B. Neither, because both returns are below the interest rate.
• C. Both, because they both have positive returns.
• D. Project A, because its return exceeds the interest rate.

Answer: (D)