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1. Me Online, Inc. is considering a project that has an initial after-tax outlay or after-tax...

1. Me Online, Inc. is considering a project that has an initial after-tax outlay or after-tax cost of $220,000. The respective future cash inflows from its four-year project for years 1 through 4 are: $50,000, $60,000, $70,000 and $80,000. Sportswear Online uses the net present value method and has a discount rate of 11%. Will Sportswear Online accept the project?

a. Me Online rejects the project because the NPV is about -$22,375.73

b. Me Online accepts the project because the NPV is greater than $10,000.00

c. Me Online rejects the project because the NPV is about -$12,375.60

d. Me Online rejects the project because the NPV is about -$12,375.60

2. Bossies, 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. Axios uses the equivalent annual annuity (EAA) method and has a discount rate of 11.50%. Will Axios accept the project?

a. Bossies, Inc. accepts Project A because its EAA is about $2,396 and Project B's EAA is only about $1,097

b. Bossies, Inc. accepts Project A because its NPV (and thus EAA) is positive and Project B's NPV (and thus EAA) is negative

c. Bossies, Inc. accepts Project B because it has a more positive EAA

d. Bossies, Inc. rejects both projects because both have a negative NPV (and thus negative EAA)

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jeff jeffy answered 1 year ago
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