Question 3

A company is considering two mutually exclusive investment projects. Each requires an initial investment of $25,000. Project A will generate an annual profit of $6,000 for eight years and have a residual value of $5,000. Project Bs profits are more irregular: $15,000 in the first year, $19,000 in the fifth year and $24,000 (including the residual value) in the eighth year. Which project should be chosen if the required return on investment is 15% compounded annually?