Yonan IncIs Considering Projects S and L, Whose Cash Flows Are

question 86

Multiple Choice

Yonan Inc.is considering Projects S and L, whose cash flows are shown below.These projects are mutually exclusive, equally risky, and not repeatable.If the decision is made by choosing the project with the shorter payback, some value may be forgone.How much value will be lost in this instance? Note that under some conditions choosing projects on the basis of the shorter payback will not cause value to be lost.
$$\begin{array}{l}\text { WACC: } \quad 10.25 \%\\\begin{array} { c c c c c r } \text { Year } & 0 & 1 & 2 & 3 & 4 \\\hline \mathrm { CF } _ { \mathrm { S } } & - \$ 950 & \$ 500 & \$ 800 & \$ 0 & \$ 0 \\\mathrm { CF } _ { \mathrm { L } } & - \$ 2,100 & \$ 400 & \$ 800 & \$ 800 & \$ 1,000\end{array}\end{array}$$

• A)$24.14
• B)$26.82
• C)$29.80
• D)$33.11
• E)$36.42

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Definitions:

Subtractive Colour

A color model that explains the mixing of colors by reducing light that would otherwise be reflected by the substrate.

Binocular Disparity

The difference in image location of an object seen by the left and right eyes, resulting from the eyes’ horizontal separation and providing a basis for depth perception.

Perceptual Hypotheses

Assumptions made by the brain in order to interpret sensory information and perceive the environment.

Psychology

The scientific study of the mind and behavior, encompassing a variety of fields including cognitive, biological, and social aspects.