Atlantis Inc. is considering two mutually exclusive projects with the following cash flows: Year 0 1 2 3 4 Project A ($120,000)
$60,000 $40,000 $60,000 $80,000 Project B ($100,000) $60,000 $50,000 $0 $0 If Atlantis accepts projects that pay back in two years or less, which should be undertaken?
1 answer:
Answer:
Project b
Explanation:
The cash payback period calculates how long the amount invested in a project would be recouped from its cummulative cash flows.
Project b should be taken because the amount invested would be recouped in 1.8 years which is less than the 2 years benchmark.
The amount invested in project A would be gotten back in 2.3 years which is greater than the 2 years benchmark. This makes project A unacceptable.
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Answer:
Option (a) is correct.
Explanation:
Given the marginal utility per dollar for the two products as follows:
All the individuals wants to maximize their utility that is obtained from the consumption of goods. We can see that marginal utility per dollar of product A is higher than the marginal utility per dollar of product B which means that this consumer should purchase more quantity of product A and less quantity of product B.
It is going on until the point at which marginal utility per dollar of both the products becomes equal.