Yonan IncIs Considering Projects S and L,whose Cash Flows Are Shown

question 63

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. $\text { WACC: } \quad 10.25 \%$
$\begin{array}{rrrrrr}&0&1&2&3&4\\\hline\mathrm{CF}_{\mathrm{S}} & -\$ 950 & \$ 500 & \$ 800 & \$ 0 & \$ 0 \\\mathrm{CF}_{\mathrm{L}} & -\$ 2,100 & \$ 400 & \$ 800 & \$ 800 & \$ 1,000\end{array}$

• A) $39.40
• B) $33.11
• C) $41.39
• D) $28.47
• E) $37.74

Understand how technology, taxes, and government regulations affect a firm's cost curves.

Apply the concepts of variable costs, fixed costs, and sunk costs to real-life business scenarios.

Understand the concept of sunk costs and their irrelevance in current decision-making.

Identify the conditions under which sunk costs become irrelevant for current and future decision-making.

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Definitions:

Premature Ejaculation

A sexual dysfunction characterized by ejaculation that occurs with minimal sexual stimulation before, upon, or shortly after penetration and before the person wishes it.

Erectile Difficulties

A condition characterized by the inability to develop or maintain an erection of the penis during sexual activity.

Vaginismus

A condition involving involuntary muscle spasm in the pelvic floor that interferes with sexual intercourse or any attempt at vaginal insertion.

Muscle Spasms

Involuntary contractions or sudden movements of a muscle or group of muscles, often associated with pain.