A Company Must Choose Between Two Mutually Exclusive Projects: Alpha $\bullet$

question 20

Essay

A company must choose between two mutually exclusive projects: Alpha and Bravo, to enhance its current operations.
$\bullet$ Project Alpha requires a $12,000 cash outlay today and is expected to generate after-tax cash flows of $6,000 in year 1, $6,500 in year 2, and $7,000 in year 3.
$\bullet$ Project Bravo requires a $20,000 cash outlay today and is expected to generate after-tax cash flows of $7,000 in year 1, $8,000 in year 2, $9,000 in year 3 and $8,000 in year 4.
$\bullet$ The appropriate discount rate for both projects is 10%.
Which project should the firm choose? Assume both projects can be replicated.