You Are Considering Two Independent Projects with the Same Discount

question 23

Multiple Choice

You are considering two independent projects with the same discount rate of 11 percent.Project A costs $284,700 and has cash flows of $75,900,$106,400,and $159,800 for Years 1 to 3,respectively.Project B costs $115,000,and has a cash flow of $50,000 a year for Years 1 to 3.You have sufficient funds to finance any decision you make.Which project or projects,if either,should you accept and why?

• A)Project A; because it is the larger-sized project with a positive IRR
• B)Project A; because it has the larger NPV
• C)Neither project; because their NPVs are less than their initial costs
• D)Project B; because its IRR exceeds the discount rate
• E)Both projects; because their NPVs are both positive

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Definitions:

Degrees Of Freedom

The number of independent values or quantities which can be assigned to a statistical distribution or to a system, without violating any constraints.

Critical Value

A point on the scale of the test statistic beyond which we reject the null hypothesis, used in hypothesis testing.

Regression Coefficients

Quantitative measures in statistical models representing the change in the dependent variable for a one-unit change in an independent variable, assuming all other variables are held constant.

F-test

A group of statistical tests that compare the variances among different sample groups to ascertain if they come from populations with equal variances.