Lithium,Inc

question 123

Multiple Choice

Lithium,Inc.is considering two mutually exclusive projects,A and B.Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two.Project B costs $120,000 and is expected to generate $64,000 in year one,$67,000 in year two,$56,000 in year three,and $45,000 in year four.Lithium,Inc.'s required rate of return for these projects is 10%.Which project would you recommend using the replacement chain method to evaluate the projects with different lives?

• A) Project B because its NPV is higher than Project A's replacement chain NPV of $47,623
• B) Project A because its replacement chain NPV is $76,652, which exceeds the NPV for Project B
• C) Project A because its replacement chain NPV is $45,642, which is less than the NPV for Project B
• D) Both projects will be valued the same since they are now both four year projects.

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Definitions:

Bugchaser

An individual who purposely seeks to get infected with sexually transmitted diseases, particularly HIV, for various psychological reasons.

Nonstaining

Describing materials or substances that do not leave stains or marks on surfaces they come into contact with.

Nontoxic

Substances or materials that do not pose any risk of poisoning or harm to humans, animals, or the environment.

Compatibility

The extent to which two or more things are able to exist or perform together in combination without conflict or inconsistency.