Two Mutually Exclusive Projects with the Same Service Lives of 2

question 45

Multiple Choice

Two mutually exclusive projects with the same service lives of 2 years are characterized by first costs of $100 million and $120 million respectively and annual savings of $60 million and $70 million respectively. If the MARR is 10%, which one should be chosen on the basis of the present worth comparison method?

• A)The second one because it has higher annual savings.
• B)The first one because its present worth is higher.
• C)The second one because its present worth is higher.
• D)The first one because incremental present worth is positive.
• E)Neither because both produce negative present worth.

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Definitions:

Aggregate Demand

The total demand for all goods and services within an economy at a given overall price level and within a specific time frame.

Monetary Policy

The process by which a country's central bank or monetary authority manages its money supply to achieve specific goals such as controlling inflation, maintaining employment, and stabilizing the currency.

Price Level

A measure of the average prices of goods and services in an economy at a given time, often compared over different periods to assess inflation or deflation.

Total Reserves

The total amount of funds or assets that a bank or financial institution has set aside to meet unexpected liabilities, requirements, or future obligations.