1. Warrior Industries is installing new equipment at a cost of $12,000,000. Expected cash flows from this project over the next 5 years will be $2,000,000, $2,000,000, $4,000,000, $6,200,000 and $8,000,000. The company's discount rate for such projects is 12 percent and Warrior uses the discounted payback method.
A. The project should be accepted if the required discounted payback period is 4.0 years.
B. After 5 years, the initial investment has not been paid back.
C. The project should be accepted if the required discounted payback period is 3.5 years.
D. The project should be rejected if the required discounted payback period is 4.0 years.
2. When passengers change airlines during connecting flights, each airline receives a portion of the airfare. A few years ago, the major domestic airlines used a sample trial period to determine what percentage of certain airfares each should collect. Using these calculations to adjust airfare splits, the airlines now say they have achieved enormous savings over previous clerical costs.
Which of the following is true?
I. The airlines ran an experiment using a trial period for the control group.
II. The airlines ran an observational study using the calculations from a trial period as a sample.
III. The airline companies believe that any error in airfare splitting due to employing a sample is small compared to the previous clerical costs necessary to calculate exact airfare splits.
A) I only
B) II only
C) III only
D) I and III
E) II and III