Consider the following projects, X and Y where the firm can only choose one. Project X costs 600 and has cash flows of 400 in each of the next 2 years.
Project Y also costs 600, and generates cash flows of 500 and 275 for the next 2 years, respectively. Which investment should the firm choose if the cost of capital is 25 percent?
A) Project X, since it has a higher NPV than Project Y
B) Project Y, since it has a higher NPV than Project X
C) neither, since both the projects have negative NPV
D) neither, since both the projects have positive NPV
Question 2
Preferred stock is characterized by ________.
A) voting rights
B) maturity date
C) quasi-debt nature
D) preemptive rights
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