Two Mutually Exclusive Projects Have an Initial Cost of $47,500

question 94

Multiple Choice

Two mutually exclusive projects have an initial cost of $47,500 each. Project A produces cash inflows of $25,300, $37,100, and $22,000 for Years 1 through 3, respectively. Project B produces cash inflows of $43,600, $19,800 and $10,400 for Years 1 through 3, respectively. The required rate of return is 14.7 percent for Project A and 14.9 percent for Project B. Which project(s) should be accepted and why?

• A) Project A, because it has the higher required rate of return.
• B) Project A, because it has the larger NPV.
• C) Project B, because it has the largest cash inflow in Year 1.
• D) Project B, because it has the higher required rate of return.
• E) Project B, because it has the larger NPV

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