Quick Flick Is Considering Two Investments

question 10

Multiple Choice

Quick Flick is considering two investments.Both require a net investment of $120,000 and have the following net cash flows:

Quick uses a combination of the net present value approach and the payback approach to evaluate investment alternatives.The firm uses a discount rate of 14 percent and requires that all projects have a payback period no longer than 3 years.Which investment or investments should Quick accept?

• A)only Project X
• B)only Project Y
• C)both projects X and Y
• D)reject both projects

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Definitions:

Short Run

A period of time in which at least one input, such as plant size, is fixed and cannot be changed by the firm, limiting its capacity to adjust output levels.

MC = P

A condition in economic theory where Marginal Cost (MC) equals Price (P), indicating optimal production levels where no additional units should be produced.

Profit

The financial gain obtained when the total revenues generated exceed the total costs incurred by a business.

Marginal Cost

The growth in total expenses incurred from the production of one more unit.