Projects a and B Both Require an Initial Investment of $100,000.Project

question 139

Multiple Choice

Projects A and B both require an initial investment of $100,000.Project A produces $200,000 in cash flows in the subsequent 5 years.Project B produces cash flow of $400,000 next year,$300,000 in year 2,$200,000 in year 3,and $50,000 in years 4 and 5.Which of the following is TRUE?

• A)The NPV of project A will be more sensitive to changes in the cost of capital compared to the NPV of project B.
• B)The NPV of project B will be more sensitive to changes in the cost of capital compared to the NPV of project A.
• C)The two projects have NPVs that are equally sensitive to changes in the cost of capital.
• D)Neither project's NPV is sensitive to changes in the cost of capital.

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Definitions:

Power Distribution

The way authority, control, and decision-making are spread across an organization or society.

Social Loafing

The phenomenon where individuals in a group or team exert less effort towards achieving a goal than when they work alone.

Group's Efforts

Collective actions and endeavors taken by a group of individuals working together towards a common goal or objective.

Norms of Behavior

Established standards or rules within a group or society that dictate the expected or acceptable ways of behaving.