Project a Is Expected to Generate Positive Cash Flow of $1

question 140

Multiple Choice

Project A is expected to generate positive cash flow of $1 million in 10 years while Project B is expected to generate $500,000 in 5 years.Therefore

• A) Project A is preferred because shareholder value is based on cash flow.
• B) Project B is preferred because its cash flow is expected to be received sooner than the cash flow from Project A.
• C) Both projects have equal value because they average $100,000 per year.
• D) Project B may be preferred to Project A if the opportunity cost of money is high enough.

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Definitions:

Additive Strategy

A problem-solving approach that involves combining different strategies or elements in order to achieve a solution.

Elimination Strategy

A problem-solving approach that systematically removes options to find the best solution.

Functional Fixedness

A cognitive bias that limits a person's ability to use an object only in the way it is traditionally used, hindering problem-solving and creativity.

Language Acquisition

The process by which humans gain the ability to perceive, produce, and use words to communicate.