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Questions 13-16 refer to the following information. There are two independent investment projects for the Galactic...

Questions 13-16 refer to the following information.

There are two independent investment projects for the Galactic Empire. Project A (build TIE Fighters) costs the Empire $300,000 to set up, and it will provide annual cash inflows of $70,000 for 7 years. Project B (build Death Star) costs the Empire $1,000,000 to set up, and it will provide annual cash inflows of $255,000 for 6 years. The Empire’s cost of capital (i.e., the required return on investment) is 10% annually, and the Empire requires the initial investments in those projects be fully paid back within 4 years, or it will run out of cash by then.

13. Based on the NPV rule alone, what project(s) should the Empire accept?

a.   Project A only.

b.   Project B only.

c.   Both Projects A and B.

d.   Neither Project A or B.

14. Based on the IRR rule alone, what project(s) should the Empire accept?

a.   Project A only.

b.   Project B only.

c.   Both Projects A and B.

d.   Neither Project A or B.

15. Based on the Payback rule alone, what project(s) should the Empire accept?

a.   Project A only.

b.   Project B only.

c.   Both Projects A and B.

d.   Neither Project A or B.

16. Based on your answers to Q13-15, what project(s) should the Empire finally choose?

a.   Project A only.

b.   Project B only.

c.   Both Projects A and B.

d.   Neither Project A or B.

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