You Are Evaluating Two Projects

question 48

Multiple Choice

You are evaluating two projects.You may accept only one of them.Project one will cost $379,000 initially and will pay $134,000 each year for the next 5 years.Project two will cost $454,000 initially,but will pay $101,000 for the next 10 years.The firm's cost of capital is 15%.Use the replacement chain approach to compute the NPV of each project.Which project has the highest NPV and by how much? Round your answers to the nearest dollar.

• A) Project 2 has a higher NPV by $240,619.
• B) Project 2 has a higher NPV by $52,189.
• C) Project 1 has a higher NPV by $240,619.
• D) Project 1 has a higher NPV by $52,189.
• E) The two projects have equal NPV.

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