Stillwater Drinks Is Trying to Determine When to Harvest the Water

question 57

Multiple Choice

Stillwater Drinks is trying to determine when to harvest the water from the fountain of youth that it currently owns. If it harvests the water in year 1, the NPV of the project would increase over an immediate harvest by 18 percent. A year 2 harvest would create an NPV increase of 12 percent over that of year 1 and year 3 would create an NPV increase of 8 percent over that of year 2. If the cost of capital is 17 percent for Stillwater, then which harvest year would maximise the NPV for the company? Assume that all NPVs are calculated from the perspective of today.

• A) Harvest immediately.
• B) Harvest in year 1.
• C) Harvest in year 2.
• D) Harvest in year 3.

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Definitions:

Selective Retention

The psychological process whereby people more easily remember information that is consistent with their beliefs, values, and previous experiences, often leading to biased recollection.

Selective Exposure

The tendency of individuals to preferentially seek out and attend to information that conforms to their existing beliefs and values.

Selective Identification

The process of targeting and engaging specific segments of an audience or market based on particular criteria for more effective marketing.

Personality

The combination of characteristics, traits, and behaviors that form an individual's distinctive character and influence their interactions and reactions.