Projects a and B Have Identical Expected Lives and Identical

question 104

Multiple Choice

Projects A and B have identical expected lives and identical initial cash outflows (costs) .However,most of one project's cash flows come in the early years,while most of the other project's cash flows occur in the later years.The two NPV profiles are given below: Which of the following statements is CORRECT?

• A)More of Project B's cash flows occur in the later years.
• B)We must have information on the cost of capital in order to determine which project has the larger early cash flows.
• C)The NPV profile graph is inconsistent with the statement made in the problem.
• D)The crossover rate, i.e., the rate at which Projects A and B have the same NPV, is greater than either project's IRR.
• E)More of Project A's cash flows occur in the later years.

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Definitions:

Shaping

A method of behavior training in which reinforcement is given for progressively closer approximations of the desired behavior.

Classically Conditioned

A learning process that occurs through associations between an environmental stimulus and a naturally occurring stimulus.

Extinction

In behavioral psychology, the process of diminishing a conditioned response by repeatedly presenting the conditioned stimulus without the unconditioned stimulus.

Conditioned Response

A learned response to a previously neutral stimulus that has become associated with an unconditioned stimulus through classical conditioning.