Question
You must decide between two mutually exclusive projects. Project A has cash flows of -$10,000; $5,000; $5,000; and $5,000; for years 0 through 3, respectively.
You must decide between two mutually exclusive projects. Project A has cash flows of -$10,000; $5,000; $5,000; and $5,000; for years 0 through 3, respectively. Project B has cash flows of -$20,000; $10,000; $10,000; and $10,000; for years 0 through 3, respectively. The firm has decided to assume that the appropriate cost of capital is 10% for both projects. Which project should be chosen? Why?
Group of answer choices
Neither A nor B; The NPVs of both projects are negative
A or B; Makes no difference which you choose because the IRR for A is identical to the IRR for B and both IRRs are greater than 10 percent, the cost of capital
A; Project A's NPV > Project B's NPV
B; Project B's NPV > Project A's NPV
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