Table 10.3 A Firm Is Evaluating Two Projects That Are Mutually Exclusive

question 6

Multiple Choice

Table 10.3
A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows:
-The new financial analyst does not like the payback approach (Table 10.3) and determines that the firm's required rate of return is 15 percent. His recommendation would be to

• A) accept projects A and B.
• B) accept project A and reject B.
• C) reject project A and accept B.
• D) reject both.

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Definitions:

Reference Pricing

Psychological pricing strategy common in retailing goods for which consumers have an idea of what the price “should be.”

Price Lining

A pricing strategy where products or services are grouped into different price ranges to target various consumer segments.

Retail Goods

Products that are sold to the end consumer for personal or household use.

Price Skimming

A pricing strategy where a firm charges the highest initial price that customers will pay and lowers it over time as demand at the higher price is satisfied.