Project S Has a Pattern of High Cash Flows in Its

question 67

Multiple Choice

Project S has a pattern of high cash flows in its early life,while Project L has a longer life,with large cash flows late in its life.Neither has negative cash flows after Year 0,and at the current cost of capital,the two projects have identical NPVs.Now,suppose interest rates and money costs decline,what will happen to projects S and L?

• A)Other things held constant, this change will cause L to become preferred to S.
• B)Other things held constant, this change will cause S to become preferred to L.
• C)Other things held constant, this change will cause L and S to have the same NPV.
• D)Other things held constant, money and interest rates will not affect the financial outcomes of S and L.

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Definitions:

Estimated Price

The anticipated price or cost of a good, service, or asset, used for budgeting and planning purposes before actual costs are known.

Production Managers

Individuals responsible for overseeing the production process and ensuring efficient production of goods within an organization.

Labour Rates

The amount of money that is paid to workers for their services, often expressed on an hourly, daily, or piecework basis.

Material Prices

The cost of raw materials and components required for the manufacturing or production of goods.