Your Company Is Considering an Investment in One of Two

question 67

Multiple Choice

Your company is considering an investment in one of two mutually exclusive projects.Project one involves a labor intensive production process.Initial outlay for Project 1 is $1,495 with expected after tax cash flows of $500 per year in years 1-5.Project two involves a capital intensive process,requiring an initial outlay of $6,704.After tax cash flows for Project 2 are expected to be $2,000 per year for years 1-5.Your firm's discount rate is 10%.If your company is not subject to capital rationing,which project(s) should you take on?

• A)Project 1
• B)Project 2
• C)Projects 1 and 2
• D)Neither project is acceptable.

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Definitions:

Prospective Customers

Potential clients or customers who are considered likely to purchase a business's products or services.

Flying Car

A type of vehicle that can function both as a standard road vehicle and an aircraft, offering a personal air travel option.

Ultimate Consumers

The end-users who purchase and use products and services for their personal use, as opposed to buying them for resale or production.

Organizational Buyers

Refers to entities such as businesses, governments, and institutions that purchase goods or services for use in the production of other goods and services, for resale, or for general business operations.