Jacko Corporation Has Two Projects in Which It Can Invest

question 15

Multiple Choice

Jacko Corporation has two projects in which it can invest.Project A has a $500,000 initial cost and will return $700,000 after tax in 4 years.Project B has a $300,000 initial cost and its after-tax returns will be $150,000 in year 1 and $200,000 in year 2.Using a 7 percent discount rate for evaluation, which project(s) should Jacko invest in?

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

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Definitions:

Interest Rate

The percentage of a sum of money charged for its use, often expressed on an annual basis.

Single Payment

A one-time transfer of money to settle a liability or make a purchase.

Payment Obligations

Financial liabilities or commitments that an entity is required to pay to another party.

Simple Interest Rate

The percentage of the principal amount that is paid as interest for a specific period.