Suppose Your Firm Is Considering Two Mutually Exclusive, Required Projects

question 20

Multiple Choice

Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown as follows. The required rate of return on projects of both of their risk class is 10 percent, and the maximum allowable payback and discounted payback statistic for the projects are two and a half and three and a half years, respectively. $$\begin{array} { | l | r | c | c | c | } \hline \text { Time } & 0 & 1 & 2 & 3 \\\hline \text { Project A Cash Flow } & - 1,000 & 300 & 400 & 700 \\\text { Project B Cash Flow } & - 500 & 200 & 400 & 300 \\\hline\end{array}$$

• A)Accept both A and B
• B)Accept neither A nor B
• C)Accept A, reject B
• D)Reject A, accept B

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Definitions:

Lawsuit

A legal action brought before a court by an individual or group against another party.

ADR

Alternative Dispute Resolution, a range of processes such as mediation and arbitration used to resolve disputes outside of court.

Neutral Third Party

An impartial individual or entity involved in a negotiation or conflict resolution who does not favor any side involved in the dispute.

Negotiation

A dialogue between parties intended to reach a beneficial outcome over a conflict, disagreement, or deal.