1. A firm utilizes a strategy of capital rationing, which is currently $375,000, and is considering the following two projects: Project A has a cost of $335,000 and the following cash flows: year 1 $140,000; year 2 $150,000; and year 3 $100,000. Project B has a cost of $365,000 and the following cash flows: year 1 $220,000; year 2 $110,000; and year 3 $150,000.

9 A. Using a 8% rate of return, what is the net present value of project A?

9 B. Using a 8% rate of return, what is the net present value of project B?

9 C. Using a 8% rate of return, which decision should the financial manager make?