Projects L and S Each Have an Initial Cost of $10,000

question 11

Multiple Choice

Projects L and S each have an initial cost of $10,000, followed by a series of positive cash inflows. Project L has total, undiscounted cash inflows of $16,000, while S has total undiscounted inflows of $15,000. Further, at a discount rate of 10 percent, the two projects have identical NPVs. Which project's NPV will be more sensitive to changes in the discount rate? (Hint: Projects with steeper NPV profiles are more sensitive to discount rate changes.)

• A) Project S.
• B) Project L.
• C) Both projects are equally sensitive to changes in the discount rate since their NPVs are equal at all costs of capital.
• D) Neither project is sensitive to changes in the discount rate, since both have NPV profiles which are horizontal.
• E) The solution cannot be determined unless the timing of the cash flows is known.

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Recognize the significance of personal ethics in decision-making.

Understand how technology like data mining and 3D printing is transforming industries.

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Definitions:

Spinout

A situation where a vehicle loses traction, causing it to rotate uncontrollably.

Power Divider

A mechanical device in vehicles, particularly in heavy-duty trucks, that splits the driving force between the front and rear axles to improve traction.

Interaxle Differential

A mechanism that allows for differential speeds between the front and rear axles of a multi-axle vehicle, improving maneuverability and traction.

Controlled Traction

Differential gearing that uses a friction plate assembly to transfer drive torque from a slipping wheel (sensed by axle shaft spinout) to its opposite.