The Projected Cash Flows for Two Mutually Exclusive Projects Are

question 116

Multiple Choice

The projected cash flows for two mutually exclusive projects are as follows: $\begin{array}{lll}\text { Year }&\text { Project A }&\text { Project B } \\0 & (\$ 150,000) & (\$ 200,000) \\1 & 80,000 & 40,000 \\2 & 60,000 & 50,000 \\3 & 50,000 & 50,000 \\4 & & 60,000 \\5 & & 50,000 \\6 & & 53,000\end{array}$ If the firm's cost of capital is 10% and the equivalent annual annuity method is used to eliminate the disparity between the projects' lives, which project should be undertaken?

• A) A
• B) B
• C) Either, because the difference in lives makes a comparison meaningless.
• D) A, but the EAAs are so close that either is probably ok.

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Definitions:

Scapegoating

The practice of unfairly blaming an individual or group for problems or negative outcomes, often to divert attention from the real causes.

Actualisation

The realization or fulfillment of one's talents and potentialities, especially considered as a drive or need present in everyone.

Enlightenment

A cultural and intellectual movement in Europe, which emphasized reason, scientific inquiry, and individual liberty over traditional social hierarchies and religious dogma.