Trudeau, Inc

question 11

Multiple Choice

Trudeau, 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 $140,000. Its future cash inflows for years 1 through 8 are the same at $36,500. 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 $48,000. Trudeau uses the equivalent annual annuity (EAA) method and has a discount rate of 13%. Which project(s) , if any, will Trudeau accept?

• A) Trudeau will take Project B because it has a positive NPV and its EAA is greater than that for Project A.
• B) Trudeau rejects both projects because both have a negative NPV (and thus negative EAA).
• C) Trudeau accepts both projects because both have a positive NPV (and thus positive EAA).
• D) Trudeau accepts Project A because its EAA of about $7,975 is greater than Project B's EAA of about $6,440.

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Definitions:

Writ of Certiorari

An order issued by a higher court to a lower court to send up the records of a case for review, often used by the U.S. Supreme Court to select cases.

Original Jurisdiction

The authority of a court to hear a case first, before any other court has reviewed the matter.

Supreme Court Justices

The judges appointed to the highest court in the land, responsible for interpreting the Constitution and reviewing significant legal issues.

U.S. Supreme Court

The highest court in the United States, which has the ultimate judicial authority to interpret federal laws including the Constitution.