A company has the option to invest in project A, project B, or neither (the projects are mutually exclusive and the company has no other investment options). Project A requires an initial investment of $100,000 today and provides cash flows of $35,000 a year for five years. The project will also return back $20,000 in capital in year six. Project B requires a $135,000 investment today and will have cash flows of $40,000 a year for 5 years. The firms hurdle rate for these projects is 8%. Which project should be selected (since, the projects are mutually exclusive you cannot invest in both for whatever reason so you should choose the one with the highest NPV if the NPV of that project is positive. If both are negative NPV, then follow the NPV rule)?

a.

Project A

b.

Project B

c.

Neither Project A nor Project B