Suppose Your Firm Is Considering Two Mutually Exclusive, Required Projects

question 49

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 8 percent, and the maximum allowable payback and discounted payback statistic for the projects are two and three years, respectively.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-20,000&10,000&30,000&1,000\\\hline\text {Project b Cash flow:}&-30,000&10,000&20,000&50,000\\\hline\end{array}\end{array}$$
Use the 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:

Dreams

Successions of images, ideas, emotions, and sensations occurring involuntarily in the mind during certain stages of sleep.

Waking Hours

The period of the day during which an individual is awake and engaging in activities, as opposed to sleeping.

Hidden Observer

A concept in hypnosis suggesting that a part of the mind remains aware and observes when the rest of the mind is under hypnosis.

Hilgard

Hilgard refers to Ernest Hilgard, a psychologist known for his research on hypnosis, especially his theory of a "hidden observer" in the hypnotic state.