Wilson's Market Is Considering Two Mutually Exclusive Projects That Will

question 63

Multiple Choice

Wilson's Market is considering two mutually exclusive projects that will not be repeated.The required rate of return is 13.9 percent for Project A and 12.5 percent for Project B.Project A has an initial cost of $54,500,and should produce cash inflows of $16,400,$28,900,and $31,700 for Years 1 to 3,respectively.Project B has an initial cost of $69,400,and should produce cash inflows of $0,$48,300,and $42,100,for Years 1 to 3,respectively.Which project,or projects,if either,should be accepted and why?

• A)Project A; because its NPV is positive while Project B's NPV is negative
• B)Project A; because it has the higher required rate of return
• C)Project B; because it has the largest total cash inflow
• D)Project B; because it has a negative NPV which indicates acceptance
• E)Neither project; because neither has an NPV equal to or greater than its initial cost

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Definitions:

Market Equilibrium

A market state where the supply of goods matches demand, leading to stable prices.

Unskilled Labor

Workers who lack specialized training or qualifications, often performing manual or simple tasks.

Surplus

The amount by which the quantity supplied of a commodity exceeds the quantity demanded at a specific price.

Minimum Wage

The lowest legal hourly pay that workers can be paid by their employers, set by government policy.