Chichester Company Is Considering Investing in the Following Two Mutually $\quad$

question 42

Essay

Chichester Company is considering investing in the following two mutually exclusive projects:
$\quad$ $\quad$ $\quad$ $\quad$$\text { Annual Cash Inflows }$
$\begin{array}{|c|c|c|}\hline \text{ Year} & \text{ Project A } & \text{ Project B } \\\hline 1 & \$ 5,000 & \$ 3,500 \\\hline 2 & 4,000 & 3,500 \\\hline 3 & 3,000 & 3,500 \\\hline 4 & 2,000 & 3,500 \\\hline \text{ Total} & \$ 14,000 & \$ 14,000 \\\hline\end{array}$
(PV of $1 and PVA of $1)(Use appropriate factor(s)from the tables provided.)
Required:
1)Which project is more desirable strictly in terms of cash inflows? Why?
2)Compute the present value of each project's cash inflows assuming the company's required rate of return is 10%.
3)What is the maximum amount Chichester should be willing to pay for each project?
4)Suppose each project costs $10,000.Which project(s)should be accepted?

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Definitions:

Paternalistic Approach

A decision-making strategy in which authority figures restrict the freedoms of those subordinate to them for their own good, often without their consent or input.

Deceiving

The act of misleading or causing someone to believe something that is not true as a form of manipulation or fraud.

Best Interest

The primary consideration that guides decisions made on another's behalf, focusing on what is most beneficial for them.

State Paternalism

The practice of the government to restrict the freedom and responsibilities of individuals for their own good.