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Consider two investments with the following sequences of cash flows: Net Cash Flow n Project A Project B 0 -3,000 -3,000 1 1,500 300 2
Consider two investments with the following sequences of cash flows:
Net Cash Flow
n | Project A | Project B |
0 | -3,000 | -3,000 |
1 | 1,500 | 300 |
2 | 1,200 | 600 |
3 | 600 | 600 |
4 | 600 | 1,200 |
5 | 300 | 2,100 |
At M A R R of 12%, which project would you select?
a) Select A as it has a higher rate of return.
b) Select A as the return on incremental investment of Project B is less than 12%
c) Select B as it generates more cash for the same amount of investment
d) neither
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