You Are Evaluating Two Projects

question 71

Multiple Choice

You are evaluating two projects.You may accept only one of them.Project one will cost $379,000 initially and will pay $134,000 each year for the next 5 years.Project two will cost $454,000 initially,but will pay $101,000 for the next 10 years.The firm's cost of capital is 15%.Compute the NPV of each project.Which project has the highest NPV and by how much? Round your answers to the nearest dollar.

• A) Project 2 has a higher NPV by $17,293.
• B) Project 2 has a higher NPV by $37,636.
• C) Project 1 has a higher NPV by $17,293.
• D) Project 1 has a higher NPV by $37,636.
• E) The two projects have equal NPV.

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Definitions:

Control

The power to influence or direct people's behavior or the course of events.

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Obstacles that impede the progress or achievement of a goal.

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The active process of receiving, interpreting, and responding to spoken messages with full attention and understanding.

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Involves several participants combining their efforts and expertise to co-create text, enhancing the quality and breadth of the final outcome.