1. Lithium, Inc. is considering two mutually exclusive projects, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. Lithium, Inc.'s required rate of return for these projects is 10%. The equivalent annual annuity amount (EAA) for project A, rounded to the nearest dollar, is
A) $17,385.
B) $15,024.
C) $22,789.
D) $20,936.
2. The basic financial metric typically used to determine whether an investment activity is, at least, minimally worth the risk of investment is the risk-free rate of return. True or False?
3. A divestiture strategy involves a series of planned abandonments which are announced ahead of time, but a liquidation strategy involves an element of secrecy. True or False?