A Company Is Choosing Between Two Projects

question 107

Multiple Choice

A company is choosing between two projects.The larger project has an initial cost of $100,000,annual cash flows of $30,000 for 5 years,and an IRR of 15.24%.The smaller project has an initial cost of $51,600,annual cash flows of $16,000 for 5 years,and an IRR of 16.65%.The projects are equally risky.Which of the following statements is CORRECT?

• A) Since the smaller project has the higher IRR,the two projects' NPV profiles cannot cross,and the smaller project's NPV will be higher at all positive values of WACC.
• B) Since the smaller project has the higher IRR,the two projects' NPV profiles will cross,and the larger project will look better based on the NPV at all positive values of WACC.
• C) If the company uses the NPV method,it will tend to favor smaller,shorter-term projects over larger,longer-term projects,regardless of how high or low the WACC is.
• D) Since the smaller project has the higher IRR but the larger project has the higher NPV at a zero discount rate,the two projects' NPV profiles will cross,and the larger project will have the higher NPV if the WACC is less than the crossover rate.
• E) Since the smaller project has the higher IRR and the larger NPV at a zero discount rate,the two projects' NPV profiles will cross,and the smaller project will look better if the WACC is less than the crossover rate.

Grasp the importance of aligning logistics and supply chain metrics with corporate strategy for achieving service quality, efficiency, or low-cost objectives.

Understand financial metrics and calculations relevant to supply chain and logistics, such as Gross Margin, Strategic Profit Model (SPM), and Earnings Before Interest and Taxes (EBIT).

Distinguish between metric, measure, and index, and understand the concept of order cycle time (OCT) and its implications.

Appreciate the importance of involving customers and suppliers in the development of metrics.

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Definitions:

Unconditioned Stimulus (UCS)

In classical conditioning, a stimulus that naturally and automatically triggers a reflexive response without prior learning.

Conditioned Stimulus (CS)

A neutral stimulus that, once paired with an unconditioned stimulus, triggers a conditioned response.

Blocking Effect

A phenomenon in which a previously learned association prevents the acquisition of a new association involving the same stimulus.

Conditional Response

A conditioned reaction to a once neutral stimulus that has become associated with an unconditioned stimulus through repeated pairing.