You are considering the following two mutually exclusive projects.The required r

Question

You are considering the following two mutually exclusive projects.The required rate of return is 14.6% for project A and 13.8% for project B. Which project should you accept and why? Year Project A Project B 0 -$50,000 -$50,000 1 24,800 41,000 2 36,200 20,000 4 21,000 10,000 A. Project A, bc it has the higher required rate of return B. Project A, bc its NPV is about $4,900 more than the NPV of project B C. Project B, bc is has the largest total cash inflow D. Project B, bc it has the largest cash inflow in one year E. Project B, bc it has the lower required return

Explanation / Answer

HI, Please find the answer as follows: NPV Project A = -50000 + 24800/(1+.146)^1 + 36200/(1+.146)^2 + 21000/(1+.146)^3 = 13157.23 NPV Project B = -50000 + 41000/(1+.138)^1 + 20000/(1+.138)^2 + 10000/(1+.138)^3 = 8256.98 13157.23 - 8256.98 = 4900.26 or 4900 Option B is correct. Thanks, Aman

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