Consider the Following Projects, X and Y Where the Firm

question 124

Multiple Choice

Consider the following projects, X and Y where the firm can only choose one. Project X costs $600 and has cash flows of $400 in each of the next 2 years. Project Y also costs $600, and generates cash flows of $500 and $275 for the next 2 years, respectively. Which investment should the firm choose if the cost of capital is 25 percent?

• A) Project X, since it has a higher NPV than Project Y
• B) Project Y, since it has a higher NPV than Project X
• C) neither, since both the projects have negative NPV
• D) neither, since both the projects have positive NPV

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