Question
Two mutually exclusive projects have an initial cost of $47,500 each. Project A produces cash inflows of $43,600, $19,800 and $10,400 for Years 1 through
Two mutually exclusive projects have an initial cost of $47,500 each. Project A produces cash inflows of $43,600, $19,800 and $10,400 for Years 1 through 3, respectively. Project B produces cash inflows of $25,300, $37,100, and $22,000 for Years 1 through 3, respectively. The required rate of return is 14.7 percent for Project A and 14.9 percent for Project B. Which project(s) should be accepted and why?
- A.
Project B, because it has the largest cash inflow in Year 1.
- B.
Project B, because it has the higher required rate of return.
- C.
Project B, because it has the larger NPV
- D.
Project A, because it has the larger NPV.
- E.
Project A, because it has the higher required rate of return.
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