$$\text { Reference: } 10 - 09$$ Lambert Manufacturing Has $120,000 to Invest in Either Project a $120,000

question 53

Multiple Choice

$$\text { Reference: } 10 - 09$$ Lambert Manufacturing has $120,000 to invest in either Project A or Project B. The following data are available on these projects: $$\begin{array} { | l | l | l | } \hline & \text { Project } A & \text { Project } B \\\hline \text { Cost of equipment needed now } & \$ 120,000 & \$ 70,000 \\\hline \text { Working capital investment needed now } & - & \$ 50,000 \\\hline \text { Annual net operating cash inflows } & \$ 50,000 & \$ 45,000 \\\hline \text { Salvage value of equipment in 6 years } & \$ 15,000 & - \\\hline\end{array}$$ Both projects have a useful life of 6 years. At the end of 6 years, the working capital investment will be released for use elsewhere. Lambert's discount rate is 14%.
-The capital budgeting method that divides a project's annual incremental net income by the initial investment is the:

• A)internal rate of return method.
• B)the net present value method.
• C)the payback method.
• D)the simple (or accounting)rate of return method.

---

Definitions:

Depth of Processing

This refers to the concept in cognitive psychology that the level at which information is thought about or engaged with affects how well it is remembered. Deeper, more meaningful processing leads to better retention.

Levels-Of-Processing Principle

A theory suggesting that the depth of mental processing affects memory recall; deeper levels of analysis produce more durable memory traces.

Cerebral Cortex

The outer layer of the brain involved in complex cognitive processes like thought, perception, and memory.

Storage Process

The phase of memory involving the retention and preservation of information over time.