Consider two investment projects. Project A is built in one year at an initial cost of $10,000. It then yields the following decreasing stream of benefits over a five-year period: $5000, $4000, $3000, $2000, $1000. Project B is built in two years. Initial costs are $10,000 in the first year and $5000 in the second year. It then yields yearly profits of $6000 for the next four years.

1. Compute the present values of both projects assuming an annual discount rate (interest rate) of 4%. Which project seems preferable? [Hint: Treat expenditures as negative and income as positive.]