Question
Given the following cash flows for two mutually exclusive projects, and a required rate of return of 12%, which of the following statements is true?
Given the following cash flows for two mutually exclusive projects, and a required rate of return of 12%, which of the following statements is true?
Year | Project A | Project B |
0 | -580,000 | -580,000 |
1 | 290,000 | 130,000 |
2 | 290,000 | 130,000 |
3 | 150,000 | 230,000 |
4 | 150,000 | 230,000 |
5 |
| 230,000 |
6 |
| 115,000 |
Project A should be accepted because it has the highest EAA.
Project B should be accepted because it has the highest NPV.
Both projects should be accepted because both have a positive NPV (and EAA).
Project B should be accepted because it has the highest EAA.
Project A should be accepted because it has the highest NPV.
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