Allied,Inc

question 88

Multiple Choice

Allied,Inc.is considering Project A and Project B,which are two mutually exclusive projects with unequal lives.Project A is an eight-year project that has an initial outlay or cost of $180,000.Its future cash inflows for years 1 through 8 are $38,000.Project B is a six-year project that has an initial outlay or cost of $160,000.Its future cash inflows for years 1 through 6 are the same at $36,000.Allied uses the equivalent annual annuity (EAA) method and has a discount rate of 11.50%.Will Allied accept the project?

• A)Allied accepts Project B because it has a more positive EAA.
• B)Allied rejects both projects because both have a negative NPV (and thus negative EAA).
• C)Allied accepts Project A because its EAA is about $2,396 and Project B's EAA is only about $1,097.
• D)Allied accepts Project A because its NPV (and thus EAA)is positive and Project B's NPV (and thus EAA)is negative.

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Definitions:

Power Dynamics

The ways in which power is distributed and exercised within relationships or social structures.

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