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Consider the following projects, X and Y where the firm can only choose one. Project X costs $600 and has cash flows of $400 in each of the next 2 years. Project B also costs $600, and generates cash flows of $500 and $275 for the next 2 years, respectively. Which investment should the firm choose if the cost of capital is 25 percent?
Annual Return
The percentage change in the value of an investment over a one-year period, including dividends, interest, and capital gains.
Standard Deviation
A statistical measure that quantifies the amount of variation or dispersion of a set of data values from their mean.
Dividend Yield
The dividend per share divided by the price per share, indicating how much a company pays out in dividends each year relative to its stock price.
Capital Gain
The profit from the sale of assets or investments when the sale price exceeds the purchase price.
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