A Company Must Choose Between Two Mutually Exclusive Projects: Alpha

question 70

Multiple Choice

A company must choose between two mutually exclusive projects: Alpha and Bravo,to enhance its current operations.Project Alpha requires a $12,000 cash outlay today and is expected to generate after-tax cash flows of $6,000 in year 1,$6,500 in year 2,and $7,000 in year 3.Project Bravo requires a $20,000 cash outlay today and is expected to generate after-tax cash flows of $7,000 in year 1,$8,000 in year 2,$9,000 in year 3 and $8,000 in year 4.The appropriate discount rate is 10 percent.Which project should the firm choose? Assume both projects can be replicated.

• A) Total NPV_Alpha=$11,194 > total NPV_Bravo=$11,180 over a 12-year time horizon, choose project Alpha
• B) Total NPV_Alpha=$16,343 > total NPV_Bravo=$15,603 over a 12-year time horizon, choose project Alpha
• C) Total NPV_Bravo=$11,194 > total NPV_Alpha=$11,180 over a 12-year time horizon, choose project Bravo
• D) Total NPV_Bravo=$16,343 > total NPV_Alpha=$15,603 over a 12-year time horizon, choose project Bravo

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Definitions:

Reduced

A term often used in chemistry to describe the gain of electrons or decrease in oxidation state by a molecule, atom, or ion.

Oxidized

Describes a process where an atom, molecule, or ion loses electrons, often associated with a gain of oxygen or loss of hydrogen in chemical reactions.

Photophosphorylation

The production of ATP in photosynthesis.

ATP Synthesis

The metabolic process by which cells produce ATP (adenosine triphosphate), the primary molecule used by cells for energy transfer.