You are considering the following two mutually exclusive projects. Project A Project B Year 0 -$10,000...

50.1K

Verified Solution

Question

Finance

You are considering the following two mutually exclusiveprojects. Project A Project B Year 0 -$10,000 -$20,000 Year 1 $3,000 $ 5,000 Year 2 $ 8,000 $ 7,000 Year 3 $ 4,000 $12,000 Year 4$ 2,000 $10,000 The required return on each project is 12 percent.Which project should you accept and what is the best reason forthat decision? a. Project B; because it has the higher net presentvalue b. Project A; because it pays back faster c. Project A;because it has the higher net present value d. Project B; becauseit has the higher profitability index e. Project A; because it hasthe higher profitability index

Answer & Explanation Solved by verified expert

3.7 Ratings (678 Votes)

Year Project A Project B 0 10000 20000 1 3000 5000 2 8000 7000 3 4000 12000 4 2000 10000 Cash Flow for Year n CFn Required Return r 12 NPV CFn1rn NPVA 10000 30001012 800010122 400010123 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

You are considering the following two mutually exclusiveprojects. Project A Project B Year 0 -$10,000 -$20,000 Year 1 $3,000 $ 5,000 Year 2 $ 8,000 $ 7,000 Year 3 $ 4,000 $12,000 Year 4$ 2,000 $10,000 The required return on each project is 12 percent.Which project should you accept and what is the best reason forthat decision? a. Project B; because it has the higher net presentvalue b. Project A; because it pays back faster c. Project A;because it has the higher net present value d. Project B; becauseit has the higher profitability index e. Project A; because it hasthe higher profitability index