Clark and Lana Are Product Managers at SML Corporation

question 77

Essay

Clark and Lana are product managers at SML Corporation. They are considering two potential investments, data for which are estimated below:
Project A Project B
Operating income $ 600 $ 750
Adjusted after-tax operating income 500 700
Adjusted total assets 1,000 3,500
Average operating assets 1,200 4,000
Current liabilities 800 500
Revenue 1,000 1,200
SML's weighted average cost of capital, which also serves as its required rate of return, is 12%.
If Clark and Lana can invest in only one project, which should they choose? Why?

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Definitions:

Good Faith

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Fair Dealing

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Course of Performance

An interpretation principle in contract law considering the conduct between parties in the execution of their duties under the contract.

Course of Dealing

A legal term referring to the previous conduct between parties in a contract that establishes a common basis for their understanding.