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Consider the following cash flows on two mutually exclusive Year Project A Project B 0 -$54,000 -$64,000 1 26,000 29,000 2 32,000 38,000 3 19,000

Consider the following cash flows on two mutually exclusive

Year Project A Project B

0 -$54,000 -$64,000

1 26,000 29,000

2 32,000 38,000

3 19,000 23,000

The cash flows of Project A are expressed in real terms while those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 11 percent and the inflation rate is 4 percent. Which project should you choose?

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