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QUESTION
A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows: Project A:
A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows:
Project A:
Initial Investment = $40,000
EOY cash flows for years 1-3 are $20,000 each
Project B:
Initial Investment = $90,000
EOY cash flows for years 1-3 are $40,000, $40,000, and $80,000 respectively.
The required rate of return is 15%. Using NPV, which project is recommended? Or both? Why?
