A Firm Utilizes a Strategy of Capital Rationing, Which Is

question 11

Multiple Choice

A firm utilizes a strategy of capital rationing, which is currently $375,000 and is considering the following two projects: Project A has a cost of $335,000 and the following cash flows: year 1 $140,000; year 2 $150,000; and year 3 $100,000. Project B has a cost of $365,000 and the following cash flows: year 1 $220,000; year 2 $110,000; and year 3 $150,000. Using a 12% cost of capital, which decision should the financial manager make?

• A) Select project A.
• B) Select project B.
• C) Do not select either project.
• D) Select both projects.

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Definitions:

Psychoanalyst

A therapist who uses psychoanalysis, a therapeutic technique founded by Freud, to explore unconscious motives and conflicts in patients.

Placebo Effect

Experimental results caused by expectations alone; any effect on behavior caused by the administration of an inert substance or condition, which the recipient assumes is an active agent.

Alleviation

The act of making something less severe or more bearable, often used in reference to pain, symptoms, or stress.

Psychotherapy

A treatment approach that uses psychological methods to help a person change and overcome problems in desired ways.