Suppose Your Firm Is Considering Two Mutually Exclusive, Required Projects

question 1

Multiple Choice

Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown as follows. The required rate of return on projects of both of their risk class is 10 percent, and the maximum allowable payback and discounted payback statistic for the projects are two and a half and three and a half years, respectively.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-1,000&300&400&700\\\hline\text {Project b Cash flow:}&-500&200&400&300\\\hline\end{array}\end{array}$$
Use the discounted payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

• A) Accept both A and B
• B) Accept neither A nor B
• C) Accept A, reject B
• D) Reject A, accept B

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Definitions:

Anxiety Hierarchies

A list of fears arranged in ascending order of intensity, used in therapies like systematic desensitization to gradually confront and reduce anxiety.

Systematic Desensitization

A therapeutic technique used to reduce fear or anxiety, by gradually exposing the person to the feared object or context without any danger.

Exposure

A therapeutic technique where individuals confront their fears or traumatic memories in a safe and controlled environment to reduce their power.

Classical Conditioning

A learning process that occurs when two stimuli are repeatedly paired; a response that is at first elicited by the second stimulus is eventually elicited by the first stimulus alone.