A Firm Is Considering Two Projects with the Following Cash

question 16

Multiple Choice

A firm is considering two projects with the following cash flows: Each project requires an investment of £120,000.
Which project will have the higher net present value?

• A) Project A
• B) Project B
• C) Project A and Project B will have the same net present value.
• D) The question cannot be answered from the information provided.

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Definitions:

Perfectly Inelastic

A situation in demand where the quantity demanded does not change regardless of changes in price.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price.

Binding Price Ceiling

A government-imposed limit on how high a price can be charged for a product or service, which is set below the market equilibrium price, leading to shortages.

Supply and Demand Relationships

Fundamental economic concepts that describe how the availability of goods (supply) and the desire for them (demand) interact to determine market prices and quantities.