Question
A company has the option to invest in project A, project B, or neither (Assume the projects are mutually exclusive and the company has no
A company has the option to invest in project A, project B, or neither (Assume the projects are mutually exclusive and the company has no other investment options, meaning the company can only invest in one of the two projects or nothing at all).
Project A requires an initial investment of $120,000 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 $130,000 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?
A: Project A
B: Project B
C: Neither Project A or B
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