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You have been given three projects to choose from. The flows of net benefits are described below. All values are deflated (not subject to inflation)
You have been given three projects to choose from. The flows of net benefits are described below. All values are deflated (not subject to inflation) and there is no additional value or salvage value at the end of the 5 year period. Year Project A Project B Project C -100,000 -100,000 -100,000 25,000 80,000 25,000 10,000 25,000 10,000 25,000 10,000 25,000 10,000 160,000 a. Which option would you select if the market rate of interest was 2 percent? (5 points) b. Which option would you select if the market rate of interest was 10 percent? (5 points) C. Explain why the project chosen in (a) and (b) is dependent upon the discount rate chosen? What does this suggest about the importance of choosing an appropriate discount rate? (5 points)
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