You Are Considering Two Mutually Exclusive Projects with the Following

question 3

Multiple Choice

You are considering two mutually exclusive projects with the following cash flows.Which project(s) should you accept if the discount rate is 8.5 percent? What if the discount rate is 13 percent?

• A)accept project A as it always has the higher NPV
• B)accept project B as it always has the higher NPV
• C)accept A at 8.5 percent and B at 13 percent
• D)accept B at 8.5 percent and A at 13 percent
• E)accept B at 8.5 percent and neither at 13 percent

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Definitions:

Recessions

Episodes of brief economic downturn where business and manufacturing activities decline, usually signaled by a decrease in the GDP for two back-to-back quarters.

Aggregate Demand

Collective appetite for goods and services in an economic system, pegged at a particular comprehensive price level for a fixed time frame.

Short-Run Aggregate Supply

The total output of goods and services that firms in an economy are willing to produce at different price levels in the short term, holding some input prices fixed.

Classical Theory

An economic theory that emphasizes the ideas that free markets can regulate themselves through the laws of supply and demand, positing minimal government intervention.