Suppose Your Firm Is Considering Two Independent Projects with the Cash

question 24

Multiple Choice

Suppose your firm is considering two independent projects with the cash flows shown as follows. The required rate of return on projects of both of their risk class is 12 percent, and the maximum allowable payback and discounted payback statistic for the projects are two and a half and three years, respectively. $$\begin{array} { l l l l l } \text { Time } & 0 & 1 & 2 & 3 \\\text { Project A Cash Flow } & - 5,000 & 1,000 & 3,000 & 5,000 \\\text { Project B Cash Flow } & - 10,000 & 5,000 & 5,000 & 5,000\end{array}$$ Use the payback 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:

Campers' Utility

The satisfaction or happiness derived by campers from engaging in camping activities, possibly influenced by factors like location, weather, or equipment.

Profit Functions

Mathematical functions that represent the profit of a firm or business based on various inputs, costs, and outputs.

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A state in which a market or economy allocates resources in a way that maximizes the benefit to society as a whole, considering both private and external effects.