Peanut Co Has 2 Projects in Which It Can Invest

question 92

Multiple Choice

Peanut Co. has 2 projects in which it can invest. Project X has a $300,000 initial cost and will return $600,000 before tax in year 2. Project Y has $600,000 initial cost and will return $1,000,000 before tax in year 4. The company uses an 8 percent discount rate for project evaluation and its marginal tax rate is expected to be 34 percent in all years. Which project(s) should Peanut Co. invest in?

• A) Project X only
• B) Project Y only
• C) Both projects
• D) Neither project

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