The Walk-Up Window Is Considering Two Mutually Exclusive Projects

question 36

Multiple Choice

The Walk-Up Window is considering two mutually exclusive projects.Project A has an initial cost of $64,230 and annual cash flows of $25,200 for three years.Project B has an initial cost of $45,400 and annual cash flows of $21,400,$21,900,and $10,200 for Years 1 to 3,respectively.What is the incremental IRR_A-B? Which project should be accepted if the discount rate is 9 percent? Which project should be accepted if the discount rate is 6 percent?

• A)6.65%; Project A; Project A
• B)6.65%; Project B; Project A
• C)7.21%; Project A; Project B
• D)7.21%; Project B: Project A
• E)6.65%; Project A; Project B

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Definitions:

License Fees

Charges paid for the authorization to use intellectual property or for the right to operate under certain regulations.

Limited And Bundled Choice Problem

A situation in which consumers' options are restricted or pre-selected in packages, potentially influencing their preferences or decisions.

Principal-Agent Problem

A dilemma in economics that occurs when one person or entity (the agent) is able to make decisions on behalf of, or that impact, another person or entity (the principal), leading to potential conflicts of interest.

Rent-Seeking Behavior

The practice of manipulating public policy or economic conditions as a strategy to increase personal incomes without adding value.