Your Firm Is Considering Investing in One of Two Mutually

question 112

Multiple Choice

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

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