Chandler Tire Co

question 16

Multiple Choice

Chandler Tire Co. is trying to decide which one of two projects it should accept. Both projects have the same start-up costs. Project 1 will produce annual cash flows of $52,000 a year for 6 years. Project 2 will produce cash flows of $48,000 a year for 8 years. The company requires a 15 percent rate of return. Which project should the company select and why?

• A) Project 1; because the annual cash flows are greater than those of Project 2
• B) Project 1; because the present value of its cash inflows exceeds those of Project 2 by $14,211.62
• C) Project 2; because the total cash inflows are $70,000 greater than those of Project 1
• D) Project 2; because the present value of the cash inflows exceeds those of Project 1 by $18,598.33
• E) It does not matter as both projects have almost identical present values.

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Definitions:

Oedipus Complex

A Freudian theory proposing that a child feels a subconscious sexual attraction to the opposite-sex parent and hostility toward the same-sex parent.

Defense Mechanisms

Psychological strategies employed unconsciously to protect oneself from anxiety arising from unacceptable thoughts or feelings.

Repression

A defense mechanism where stressful thoughts or memories are unconsciously pushed out of conscious awareness.

Freud's Concept

Theoretical ideas proposed by Sigmund Freud, focusing on the unconscious mind, the importance of childhood, and the structure of personality into ego, id, and superego.