Question
Assume that ABCDEFG Corp. can either invest in Project A or Project B. Project A requires the initial investment of $51,000 and will generate $15,000
Assume that ABCDEFG Corp. can either invest in Project A or Project B. Project A requires the initial investment of $51,000 and will generate $15,000 at Year 1, $14,500 at Year 2, $13,000 at Year 3, $14,000 at Year 4, $15,000 at Year 5, and $16,000 at Year 6. Project B will require the initial investment of $60,000 and will generate $11,000 at Year 1, $21,000 at Year 2, $12,000 at Year 3, $10,000 at Year 4, $8,000 at Year 5, and $50,000 at Year 6. If the interest/discount rate for both project is 11.2%, which of these two project is a better option if the decision is being made based on the Net Present Value (NPV) basis? Assume the firm needs to make a "mutually exclusive" decision where taking both projects is not an option because of the firm's inability (i.e. lack of resources) to do so.
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