You Are Considering Two Mutually Exclusive Projects with the Following

question 287

Multiple Choice

You are considering two mutually exclusive projects with the following cash flows. Which project(s) should you accept if the discount rate is 7 percent? What if the discount rate is 10 percent?

• A) Accept project A as it always has the higher NPV.
• B) Accept project B as it always has the higher NPV.
• C) Accept A at 7 percent and B at 10 percent.
• D) Accept B at 7 percent and A at 10 percent.
• E) Accept A at 7 percent and neither at 10 percent.

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Definitions:

Substitutes

Alternate products or services that can satisfy the same consumer need, allowing consumers to switch between them based on preference, price, or availability.

Cross-price Elasticity

A measure of how the demand for one good responds to a change in the price of another good, indicating substitutes or complements.

Complements

Goods or services that are used together, such that an increase in demand for one leads to an increase in demand for the other.

Price Decrease

A decline in the cost of a good or service in the market.