Your Company Is Considering an Investment in One of Two

question 45

Multiple Choice

Your company is considering an investment in one of two mutually exclusive projects.Project 1 involves a labor intensive production process.Initial outlay for Project 1 is $1,495 with expected after-tax cash flows of $500 per year in years 1-5.Project 2 involves a capital intensive process,requiring an initial outlay of $6,704.After-tax cash flows for Project 2 are expected to be $2,000 per year for years 1-5.Your firm's discount rate is 10%.If your company is not subject to capital rationing,which project(s) should you take on?

• A) Project 1
• B) Project 2
• C) Projects 1 and 2
• D) Neither project is acceptable.

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Definitions:

Highest Occupied

Pertaining to the highest energy level that contains electrons in an atom or molecule under ground state conditions.

Molecular Orbital

A region in a molecule where electrons are most likely to be found, representing the quantum mechanical behavior of electrons in molecules.

Conjugated Pi System

A molecular structure where alternating single and double bonds allow electrons to be more delocalized and contribute to the molecule's stability.

LUMO

The Lowest Unoccupied Molecular Orbital is the orbital with the lowest energy level capable of accepting an electron.