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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Questions 8-12 refer to the following information. Year Project A (upgrade existing B-Wings) Project B (develop new X-Wings) 0 -$250,000 -$400,000 1 $100,000 $50,000 2 $80,000 $70,000 3 $60,000 $80,000 4 $40,000 $120,000 5 $20,000 $200,000 The above are two mutually exclusive investment projects for Rebel Alliance. The Alliance requires getting their invested amount fully paid back within 5 years. The Alliances cost of capital (i.e., the required return on investment) is 6% annually. 8. Based on the Payback rule, what project(s) should the Alliance accept? a. Project A only. b. Project B only. c. Both Projects A and B. d. Neither Project A or B. 9. Based on the NPV rule, what project(s) should the Alliance accept? a. Project A only. b. Project B only. c. Both Projects A and B. d. Neither Project A or B. 10. Based on the IRR rule, what project(s) should the Alliance accept? a. Project A only. b. Project B only. c. Both Projects A and B. d. Neither Project A or B. 11. Based on your answers to Q8-10, what project(s) should the Alliance accept? a. Project A only. b. Project B only. c. Both Projects A and B. d. Neither Project A or B. 12. At what discount rate would the Alliance be indifferent between the two projects? a. 4%. b. 5%. c. 6%. d. 7% e. 8%.
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