Question
RainMan Inc. is in the business of producing rain upon request. They must decide between two investment projects: a new airplane for seeding rain clouds
RainMan Inc. is in the business of producing rain upon request. They must decide between two investment projects: a new airplane for seeding rain clouds or a new weather control machine built by Dr. Nutzbaum. The discount rate for the new airplane is 9%, while the discount rate for the weather machine is 39% (it happens to have higher market risk). Which investment should the company select and why? (Assume a 0% inflation rate and that projected costs do not change over time.)
A. Airplane because it has a higher NPV
B. Weather machine because it has a higher NPV
C. Airplane because it has a higher equivalent annual cash flow
D. Weather machine because it has a higher equivalent annual cash flow
Year Airplane 0 -900 1 500 2 600 3 Weather Machine -900 550 600 685Step by Step Solution
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