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A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows: Project A Project B Initial End-of-Year Initial
A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows:
Project A | Project B | |||||
Initial | End-of-Year | Initial | End-of-Year | |||
Investment | Cash Flows | Investment | Cash Flows | |||
$40,000 | Year 1 | 20000 | $90,000 | Year 1 | 40000 | |
Year 2 | 20000 | Year 2 | 40000 | |||
Year 3 | 20000 | Year 3 | 50000 |
You are a financial analyst in the firm and you dont like the payback approach. You want to use NPV method to evaluate the projets. Your recommendation would be to (Suppose the firm's required rate of return is 22%)
accept projects A and B. | ||
accept project A and reject B | ||
reject project A and accept B. | ||
reject both. | ||
Can't tell the difference |
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