2. Your firm wants to choose between two project options:

Project A offers the following opportunity: $450,000 invested today will yield an expected income stream of $145,000 per year for five years, starting in Year 1.

Project B requires an initial investment of $400,000, but its expected revenue stream is: Year 1 = 0, Year 2 = $50,000, Year 3 = $200,000, Year 4 = $300,000, and Year 5 = $200,000.

Assume that a required rate of return for your company is 12% and that inflation is expected to remain steady at 5% for the life of the project. Which is the better investment? Why?