Textiles Unlimited Has Gathered Projected Cash Flows for Two Projects

question 68

Multiple Choice

Textiles Unlimited has gathered projected cash flows for two projects.At what interest rate would the company be indifferent between the two projects? Which project is better if the required return is 12 percent? $$\begin{array} { | r | r | r | } \hline \text { Year } & \underline { \text { Cash Flow } } & \underline { \text { Cash } } \\& \underline { ( A ) } & \text { Flow(B) } \\\hline 0 &-\$105,000&-\$105,000\\\hline 1 & 42,200 & - 52,600 \\\hline 2 & 34,600 & 39,400 \\\hline 3 & 38,700 & 35,500 \\\hline 4 & 40,500 & 30,100 \\\hline\end{array}$$

• A)11.76 percent; A
• B)12.49 percent; A
• C)12.49 percent; B
• D)-4.44 percent; A
• E)-4.44 percent; B

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Definitions:

Corporation

A legal entity formed by issuing stock to investors, who are the owners of the corporation.

Preferences

Preferences typically involve decisions or policies that give priority or advantage to particular individuals or groups, often seen in legal contexts such as bankruptcy.

Corporate Veil

A legal concept separating the actions of a corporation from its shareholders, protecting them from being personally liable for the company's debts and obligations.

Fraud

The intentional deception or misrepresentation made by one party to another, resulting in harm or loss.