Projects a and B Have the Same Expected Lives and Initial

question 83

Multiple Choice

Projects A and B have the same expected lives and initial cash outflows.However, one project's cash flows are larger in the early years, while the other project has larger cash flows in the later years.The two NPV profiles are given below: Which of the following statements is correct?

• A) Project A has the smaller cash flows in the later years.
• B) Project A has the larger cash flows in the later years.
• C) We require information on the required rate of return in order to determine which project has larger early cash flows.
• D) The NPV profile graph is inconsistent with the statement made in the problem.
• E) None of the above statements is correct.

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Definitions:

Decision Variables

Choices available to a decision maker.

Linear Programming

A mathematical technique used for optimization of resources, which involves linear equations to represent constraints and an objective function to maximize or minimize.

Objective Function

A mathematical function used in optimization to represent the goal that needs to be achieved, often minimizing or maximizing some quantity.

Linear Programming

A mathematical method for determining the best outcome (such as maximum profit or lowest cost) in a given mathematical model for some list of requirements represented as linear relationships.