Suppose Your Firm Is Considering Two Mutually Exclusive, Required Projects

question 90

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 8 percent, and the maximum allowable payback and discounted payback statistic for the projects are two and three years, respectively. $$\begin{array} { l l l l l } \text { Time } & 0 & 1 & 2 & 3 \\\text { Project A Cash Flow } & - 20,000 & 10,000 & 30,000 & 1,000 \\\text { Project B Cash Flow } & - 30,000 & 10,000 & 20,000 & 50,000\end{array}$$ 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:

Demand Curve

The demand curve is a graphical representation of the relationship between the price of a good and the quantity demanded, showing how the quantity demanded changes in response to changes in price.

Initial Purchase

The first acquisition of a good or service by a consumer, often marking the beginning of the consumption experience.

Income Elasticity of Demand

An indicator of the variation in demand for a product based on changes in consumer income.

Used Clothing

Clothing that has been previously worn and is often sold at lower prices than new clothing; it's part of the second-hand market.