You are considering two mutually exclusive projects with the following cash flow

Question

You are considering two mutually exclusive projects with the following cash flows. Will you choice between the two projects differ if the required rate of return is 8 percent rather than 11 percent? If so, what should you do?

Year                         Project A                       Project B

0                               -$240,000                    -$198,000

1                                $0                                $110,800

2                                $0                                $82,500

3                                $325,000                     $45,000

Yes; Select A at 8 percent and B at 11 percent

Yes; Select B at 8 percent and A at 11 percent

Yes; Select A at 8 percent and select neither at 11 percent

no; Regardless of the required rate, project A always has the higher NVP

no; Regardless of the requried rate, project B always has the higher NVP.

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Explanation / Answer

Yes; Select A at 8 percent and select neither at 11 percent

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