You Are Evaluating Two Projects

question 69

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%.Use the equal annual annuity method (EAA) to select between the two projects.Which project has the highest EAA and by how much? Round your answers to the nearest dollar.

• A) Project 2 has a higher EAA by $10,398.
• B) Project 2 has a higher EAA by $1,794.
• C) Project 1 has a higher EAA by $10,398.
• D) Project 1 has a higher EAA by $1,794.
• E) The two projects have equal EAA.

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Definitions:

Expectations For Maturity

Refers to the anticipated behavioral and emotional developmental milestones considered typical at certain ages.

Warmth

A quality of friendliness, kindness, and affection, often perceived in interactions or relationships.

Authoritarian

A leadership or government style characterized by absolute or blind submission to authority, often involving the enforcement of strict obedience to directives without input from those being led.

Unquestioning Obedience

A behavioral condition where an individual follows orders without protest or inquiry of its righteousness.