Apple,IncIs Considering Project a and Project B,which Are Two Mutually

question 90

Multiple Choice

Apple,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 $140,000.Its future cash inflows for years 1 through 8 are the same at $36,500.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 $48,000.Apple uses the equivalent annual annuity (EAA) method and has a discount rate of 13%.Which project(s) ,if any,will Apple accept?

• A)Apple will take Project B because it has a positive NPV and its EAA is greater than that for Project A.
• B)Apple rejects both projects because both have a negative NPV (and thus negative EAA).
• C)Apple accepts both projects because both have a positive NPV (and thus positive EAA).
• D)Apple accepts Project A because its EAA of about $7,975 is greater than Project B's EAA of about $6,440.

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Definitions:

Free Trade

The absence of artificial (government) barriers to trade among individuals and firms in different nations.

Economic Inefficiency

A situation where resources are not allocated optimally, leading to waste or loss in the potential value of output.

Hollow Corporation

A business model where a company outsources most of its production processes, keeping only core functions such as design, marketing, and branding in-house.

Imports Foreign Goods

The act of bringing goods and services from foreign countries into one's own country for sale.