Corey Is Considering Two Projects Both of Which Have an Initial

question 5

Multiple Choice

Corey is considering two projects both of which have an initial cost of $20,000 and total cash inflows of $25,000. The cash inflows of project A are $3,000, $5,000, $8,000, and $9,000 over the next four years, respectively. The cash inflows for project B are $9,000, $8,000, $5,000, and $3,000 over the next four years, respectively. Which one of the following statements is correct if Corey requires a 10 % rate of return and has a required discounted payback period of 3 years?

• A) Both projects should be accepted.
• B) Both projects should be rejected.
• C) Project A should be accepted and project B should be rejected.
• D) Project A should be rejected and project B should be accepted.
• E) You should be indifferent to accepting either or both projects.

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Definitions:

Cost-plus-fixed-fee Pricing

A pricing method where the selling price is determined by adding a fixed fee to the cost of the product or service.

Cost-plus-percentage-of-cost Pricing

A pricing strategy where the selling price is determined by adding a specific percentage markup to the cost of the product or service.

Standard Markup Pricing

A strategy in pricing that involves adding a set percentage above the product's cost to calculate its retail price.

Bolt Of Fabric

A large roll of cloth or fabric that is typically measured in yards or meters, used in manufacturing and sewing industries.