Question
Merchandise Mart is considering two projects: Project A and Project B. Project A has a cost of $335,000. The year 1 projected cash flows for
Merchandise Mart is considering two projects: Project A and Project B. Project A has a cost of $335,000. The year 1 projected cash flows for this project are $140,000. The year 2 projected cash flows for this project are $150,000. The year 3 projected cash flows for this project are $100,000. Project B has a cost of $365,000. The year 1 projected cash flows for this project are $220,000. The year 2 projected cash flows for this project are $110,000. The year 3 projected cash flows for this project are $150,000.
Merchandise Mart uses a capital rationing strategy, which is currently $375,000. Assuming a 12% cost of capital, what decision should the company make?
Select one:
a. Select project A.
b. Select project B.
c. Select both projects.
d. Do not select either project.
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