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Cana Ingeniera

MUTUALLY EXCLUSIVE ALTERNATIVES WITH DIFFERENT LIVES

A company is evaluating two mutually exclusive projects in which to invest. Project A needs an investment of $600 and will deliver $250 in annual profits during its 4 years life. Project B needs an investment of $700 and will deliver $350 in annual profits during its 3 years life. Using Net Present Value, a Study Period of 3 years for both alternatives and an interest rate of 12% per year, find which project is more convenient. Assume that project A can be sold for 150 at the end of the 31 year (because it will still have 1 year of productive life).