George, Inc

question 47

Multiple Choice

George, Inc. is considering Project A and Project B, which are two mutually exclusively projects with unequal lives. Project A is an eight-year project that has an initial outlay or cost of $180,000. Its future cash inflows for years 1 through 8 are $38,000.Project B is a six-year project that has an initial outlay or cost of $160,000. Its future cash inflows for years 1 through 6 are the same at $36,000. George uses the equivalent annual annuity (EAA) method and has a discount rate of 11.50%. Will George accept the project?

• A) George accepts Project B because it has a more positive EAA.
• B) George rejects both projects because both have a negative NPV (and thus negative EAA).
• C) George accepts Project A because its EAA is about $2,396 and Project B's EAA is only about $1,097.
• D) George accepts Project A because its NPV (and thus EAA) is positive and Project B's NPV (and thus EAA) is negative.

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Definitions:

Social Referencing

The process by which individuals look to others in their environment for cues on how to react or behave in uncertain situations.

Caregiver's Facial Expressions

The nonverbal cues and emotions displayed by a person looking after another, significant for child development and emotional understanding.

Ambiguous Situations

Circumstances or scenarios that lack clear interpretation or can be understood in more than one way.

Social Referencing

The process by which individuals look to others in their environment for cues on how to react or behave in unfamiliar situations.