The Square Box Is Considering Two Projects, Both of Which

question 4

Multiple Choice

The Square Box is considering two projects, both of which have an initial cost of $35,000 and total cash inflows of $50,000. The cash inflows of project A are $5,000, $10,000, $15,000, and $20,000 over the next four years, respectively. The cash inflows for project B are $20,000, $15,000, $10,000, and $5,000 over the next four years, respectively. Which one of the following statements is correct if The Square Box requires a 12 percent rate of return and has a required discounted payback period of 3.5 years?

• A)Both projects should be accepted.
• B)Both projects should be rejected.
• C)Project A should be accepted and project B should be rejected.
• D)Project A should be rejected and project B should be accepted.
• E)You should be indifferent to accepting either or both projects.

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Definitions:

Significance Levels

Significance levels indicate the probability of observing the test statistic as extreme as the results obtained, given that the null hypothesis is true, acting as a criterion for the decision of whether to reject it.

Sample Sizes

The number of observations or data points collected in a subset of a population for the purpose of statistical analysis.

Test Statistic

A calculated value used in statistical testing to determine whether to reject the null hypothesis, based on the difference between observed data and what is expected under the null hypothesis.

Sample Information

Data or facts obtained from a subset of a larger population used for the purpose of statistical analysis.