Farmer CoIs Considering Projects S and L,whose Cash Flows Are Shown

question 96

Multiple Choice

Farmer Co.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. $\begin{array}{lccccc}\text { WACC: } & 10.25 \%\\\text { Year } & 0 & 1 & 2 & 3 & 4 \\\mathrm{CF}_{\mathrm{S}} & -\$ 950 & \$ 500 & \$ 800 & \$ 0 & \$ 0\\\mathrm{CF}_{\mathrm{L}} & -\$ 2.100 & \$ 400 & \$ 800 & \$ 800 & \$ 1.000\end{array}$

• A) $24.14
• B) $26.82
• C) $29.80
• D) $33.11
• E) $36.42

Comprehend the procedural steps required for corporate combinations and the role of the board of directors.

Distinguish between short-form mergers and other corporate combinations.

Understand the concept of a subsidiary corporation and the implications of ownership in corporate combinations.

Recognize the legal distinctions between the surviving and disappearing entities in mergers and consolidations.