A Company Looking for a Return of 12% Has Capital

question 8

Multiple Choice

A company looking for a return of 12% has capital available for projects equalling $100,000 and three projects under consideration. Each of the projects will last five years. While all the projects are divisible, if the company selects project B, it cannot do project C. Project A costs $54,000 and provides and income before amortization of $25,000, $25,000, $28,000, $26,000, and $22,000, respectively. Project B costs $63,000 and provides $12,000, $16,000, $20,000, $30,000 and $45,000 respectively. Project C costs $70,000 and provides $35,000 $24,000 $18,000 $19,000 and $10,000 respectively. The company should do

• A) Project A and part of Project B as the NPV is highest for Project A and NPV is higher for Project B than Project C
• B) Project A and part of Project C as profitability index is highest for Project A and is higher for Project C than for Project B
• C) Project B and part of Project A as NPV is highest for Project B and higher for Project A than Project C
• D) All of Project C and part of Project A as this maximizes cash flow according to the profitability index
• E) All of Project B and part of Project A as this maximizes cash flow according to the profitability index

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Definitions:

Powerful Stakeholders

Individuals or groups that hold significant influence, resources, or power within or outside an organization, affecting its decisions and actions.

Collective Responsibility

Collective responsibility is the doctrine or principle that each member of a group shares responsibility for the actions or outcomes of the group as a whole, emphasizing mutual accountability.

Mediating Variables

Variables that explain the relationship between two other variables, usually serving as an intermediary or mechanism through which an effect occurs.

Heroic Individual Leaders

The concept that leaders are exceptional individuals, possessing unique traits that enable them to influence and direct others effectively, often single-handedly overcoming obstacles.