Andrew Oxnard, chief financial officer, has been asked by Harry Pendel, chief executive officer and cofounder of
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Andrew Oxnard, chief financial officer, has been asked by Harry Pendel, chief executive officer and cofounder of Pendel & Braithwaite, Ltd.
(P&B), to analyze two capital investment projects (projects A and B), which are expected to generate the following profit (p) streams:
Profit Streams for Projects A and B ($ thousands)
Period, t pA pB 1 $100 $350 2 200 300 3 250 200 4 300 100 5 325 100 $1,175 $1,050 Profits are realized at the end of each period. Assuming that P&B is a profit maximizer, if the discount rate for both projects is 12%, which of the two projects should be adopted?
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