Assume in Analyzing Alternative Proposals That Proposal F Has a Useful

question 110

Multiple Choice

Assume in analyzing alternative proposals that Proposal F has a useful life of 6 years and Proposal J has a useful life of 9 years. What is one widely used method to make the net present values of the proposals comparable?

• A)Ignore the fact that Proposal F has a useful life of 6 years and treat it as if it has a useful life of 9 years.
• B)Adjust the life of Proposal J to a time period that is equal to that of Proposal F by estimating a residual value at the end of year 6.
• C)Ignore the useful lives of 6 and 9 years and find an average (7 1/2 years).
• D)Ignore the useful lives of 6 and 9 years and compute the average rate of return.

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Definitions:

Allocative Efficiency

The state of resources being allocated in a way that maximizes the welfare or utility of consumers according to their preferences.

Productive Efficiency

A condition where an economy or firm produces goods or services at the lowest possible cost, utilizing resources in the best way possible.

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Differentiated Oligopoly

A market structure in which a few firms offer products or services that are not perfect substitutes, leading to competition based on product differentiation.