Real Time Systems Inc

question 113

Multiple Choice

Real Time Systems Inc.is considering the development of one of two mutually exclusive new computer models.Each will require a net investment of $5,000.The cash flow figures for each project are shown below: Model B, which will use a new type of laser disk drive, is considered a high-risk project, while Model A is of average risk.Real Time adds 2 percentage points to arrive at a risk-adjusted discount rate when evaluating a high-risk project.The rate used for average risk projects is 12 percent.Which of the following statements regarding the NPVs for Models A and B is most correct?

• A) NPV_A = $380; NPV_B = $1,815.
• B) NPV_A = $197; NPV_B = $1,590.
• C) NPV_A = $380; NPV_B = $1,590.
• D) NPV_A = $5,380; NPV_B = $6,590.
• E) None of the above statements is correct.

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