Yonan IncIs Considering Projects S and L,whose Cash Flows Are Shown

question 102

Multiple Choice

Yonan Inc.is considering Projects S and L,whose cash flows are shown below.These projects are mutually exclusive,equally risky,and not repeatable.If the decision is made by choosing the project with the shorter payback,some value may be foregone.How much value will be lost in this instance? Note that under some conditions choosing projects on the basis of the shorter payback will not cause value to be lost. $\begin{array}{ccccc}\text { WACC: } & 10.00 \% \\&0 & 1 & 2 & 3 & 4 \\\hline \mathrm{CFS}_{\mathrm{S}} &-\$ 1,000 & \$ 500 & \$ 800 & \$ 0 & \$ 0 \\\mathrm{CF}_{\mathrm{L}} &-\$ 2,100 & \$ 400 & \$ 800 & \$ 800 & \$ 1,000\end{array}$

• A)$55.16
• B)$66.42
• C)$78.79
• D)$93.16

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Definitions:

Guaranty Agreement

A legal document where one party agrees to be responsible for another's debt or obligations.

Alienated Followers

Individuals within a group or organization who feel estranged or disconnected from the group's goals or leadership.

Passive Behavior

A non-assertive response pattern where individuals avoid direct confrontation or asserting their own preferences and needs.

Independently

Acting or thinking in a manner that is free from outside control or influence.