A Firm Is Evaluating Two Independent Projects Utilizing the Internal

question 100

Multiple Choice

A firm is evaluating two independent projects utilizing the internal rate of return technique. Project X has an initial investment of $80,000 and cash inflows at the end of each of the next five years of $25,000. Project Z has a initial investment of $120,000 and cash inflows at the end of each of the next four years of $40,000. The firm should

• A) accept both if the cost of capital is at most 15 percent.
• B) accept only Z if the cost of capital is at most 15 percent.
• C) accept only X if the cost of capital is at most 15 percent.
• D) none of the above

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Definitions:

Disconfirmation Bias

The tendency to notice, refute and regard as weak, arguments that contradict our prior beliefs.

Current Beliefs

Current beliefs refer to the opinions or convictions held by an individual at the present time.

Heuristic Processing

A mental shortcut that allows people to solve problems and make judgments quickly and efficiently.

Technical Jargon

Specialized vocabulary or terminology associated with a particular field or area of expertise.