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We have two independent and mutually exclusive projects, A and B. Project A requires an initial investment of $1000, and will yield $500 of cash
We have two independent and mutually exclusive projects, A and B. Project A requires an initial investment of $1000, and will yield $500 of cash inflows for the next three years. Project B requires an initial investment of $3,500, and will yield $1,000 of cash inflows for the next five years. The required return on both projects is 10%.
The NPV of Project A is 243.43
The NPV of Project B is 291.00
What is the problem with using the NPV investment criterion in this case? What alternative criterion should be used?
Which project should be chosen?
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