Question
Your firm is considering investing in one of two mutually exclusive projects. Project A requires an initial outlay of $3,500 with expected fututre cash flows
Your firm is considering investing in one of two mutually exclusive projects. Project A requires an initial outlay of $3,500 with expected fututre cash flows of $2000 per year for the next three years. Project B requires an initial out lay of $2,500 with expected futute cash flows of $1500 per year for the next two years. The appropriate discount rate for your firm is 12% and it is not subject to capital rationing. Assuming both projects can be replaced with a similar investment at the end of their respective lives, compute the NPV of the two chain cycle for Project A and three chain cycle for Project B.
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