Samuelson Electronics Has a Required Payback Period of Three Years

question 36

Multiple Choice

Samuelson Electronics has a required payback period of three years for all of its projects.Currently,the firm is analyzing two independent projects.Project A has an expected payback period of 2.8 years and a net present value of $6,800.Project B has an expected payback period of 3.1 years with a net present value of $28,400.Which projects should be accepted based on the payback decision rule?

• A)Project A only
• B)Project B only
• C)Both A and B
• D)Neither A nor B
• E)Answer cannot be determined based on the information given.

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Definitions:

Economies of Scale

Refers to the cost advantage experienced by firms when they increase their level of production. The advantage arises due to the inverse relationship between per-unit fixed cost and the quantity produced.

Oligopolistic

Pertaining to an oligopoly, a market structure with a few firms dominating the industry, leading to limited competition.

Herfindahl-Hirschman Index

A measure of market concentration to assess the level of competition within an industry.

Herfindahl-Hirschman Index

A measure of market concentration, calculated by summing the squares of the market shares of all firms in the industry.