Your firm is considering investing in one of two mutually exclusive projects. Pr

Question

Your firm is considering investing in one of two mutually exclusive projects. Project A requires an initial outlay of $3,500 with expected future cash flows of $2,000 per year for the next three years. Project B requires an initial outlay of $2,500 with expected future cash flows of $1,500 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. A) $2,232 and $85 B) $5,000 and $1,500 C) $2,865 and $94 D) $3,528 and $136

Explanation / Answer

A .

Proj A: 2000, 2000,-1500,2000,2000,2000

Proj B: 1500,-1000,1500,-1000,1500,1500

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