Suppose Your Firm Is Considering Two Mutually Exclusive, Required Projects

question 13

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. $$\begin{array} { l l l l l } \text { Time } & 0 & 1 & 2 & 3 \\\text { Project A Cash Flow } & - 1,000 & 300 & 400 & 700 \\\text { Project B Cash Flow } & - 500 & 200 & 400 & 300\end{array}$$ Use the PI decision rule to evaluate these projects; which one(s) should be accepted or rejected?

• 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:

Organisational System

A structured arrangement of processes, resources, and people designed to achieve the objectives of an organization in an efficient manner.

Subsystem

A component of a larger system that performs a specific role or function within the overall operation, contributing to the system's efficiency and effectiveness.

Work Unit

A functional division or team within an organization that focuses on specific tasks or objectives, often denoted by departmental or project-based assignments.

Chain of Command

The chain of command is an organizational structure in which authority and responsibility are clearly outlined from the top management to the lowest ranks.