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The following cash flow and other financial data for two mutually exclusive projects A with a life of 2 years, and B with a life
The following cash flow and other financial data for two mutually exclusive projects A with a life of 2 years, and B with a life of 4 years.
|
| Expected Net Cash Flow | |
| Year | Project A | Project B |
| 0 | -$100,000 | -$100,000 |
| 1 | 60,000 | 33,500 |
| 2 | 60,000 | 33,500 |
| 3 | - | 33,500 |
| 4 | - | 33,500 |
Based on the risk analysis, the cost of capital is 10% for both projects.
The projects A and B initial NPVs without replication are
| A. | $856 and $1,050 respectively. | |
| B. | $1,978 and $2,134 respectively. | |
| C. | $4,132 and $6,190 respectively | |
| D. | $5,345 and $7,235 respectively. | |
| E. | $7,278 and $8,400 respectively |
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