Suppose Your Firm Is Considering Two Mutually Exclusive, Required Projects

question 39

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 IRR 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

---

Definitions:

Blood Cultures

Lab tests performed on samples of blood to detect the presence of bacteria, fungi, or other microorganisms.

Water Cooled Blankets

Specialized blankets that use circulating water to control body temperature for therapeutic or comfort purposes.

Orthostatic Hypotension

A form of low blood pressure that happens when standing up from sitting or lying down.

Hypotension

Abnormally low blood pressure, which might cause symptoms of dizziness or fainting.