A Firm Utilizes a Strategy of Capital Rationing, Which Is

question 30

Multiple Choice

A firm utilizes a strategy of capital rationing, which is currently $375,000 and is considering the following two projects: Project A has a cost of $335,000 and the following cash flows: year 1 $140,000; year 2 $150,000; and year 3 $100,000. Project B has a cost of $365,000 and the following cash flows: year 1 $220,000; year 2 $110,000; and year 3 $150,000. Using a 6% cost of capital, what is the internal rate of return of project B?

• A) Higher than 6%
• B) Lower than 6%
• C) Exactly 6%
• D) Can not be determined from the given information

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Definitions:

Exposure Therapy

A psychological treatment that helps individuals confront their fears by gradual and repeated exposure to the feared object or context without any danger, in order to overcome their anxiety.

Repression

A defense mechanism where unwanted thoughts and desires are unconsciously pushed out of conscious awareness.

Resistance

In psychology, an individual's unconscious defense mechanisms that hinder the progress of therapy or change by opposing the uncovering of unconscious material.

Systematic Desensitization

A behavior therapy technique used to reduce phobias and anxieties by gradually exposing individuals to the feared object or situation while teaching relaxation strategies.