RainMan Inc A)Airplane, Because It Has a Higher NPV
B)Weather Machine, Because

question 30

Multiple Choice

RainMan Inc.is in the business of producing rain upon request.They must decide between two investment projects: a new airplane for seeding rain clouds or a new weather control machine built by Dr.Nutzbaum.The discount rate for the new airplane is 9 percent, while the discount rate for the weather machine is 39 percent (it happens to have higher market risk) .Which investment should the company select and why? (Assume a 0 percent inflation rate and that projected costs do not change over time.) $\begin{array} { cc c } \text { Year } & \text { Airplane } & \text { Weather Machine } \\0 & - 900 & - 900 \\1 & 500 & 550 \\2 & 600 & 600 \\3 & & 685\end{array}$

• A)Airplane, because it has a higher NPV
• B)Weather machine, because it has a higher NPV
• C)Airplane, because it has a higher equivalent annual cash flow
• D)Weather machine, because it has a higher equivalent annual cash flow

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Definitions:

SEC

The Securities and Exchange Commission, a U.S. government agency responsible for regulating and enforcing federal securities laws.

Persuasive Evidence

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