We have two mutually exclusive projects A and B. Both require initial costs of $10,000 and last for 4 years. Project A has expected future cash flows of $4,000, $5,000, $8,000 and $3,000, respectively. Project B has expected future cash flows of $8,000, $9,000, $2,000 and -$3,000. If the required return for project A is 12% and the required return for project B is 9%, which project should we start? Choose project A because its NPV is higher than project B Choose project B because its NPV is higher than project A Choose project A because project B has negative future cash flows Choose project A because its required return is higher than project A

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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We have two mutually exclusive projects A and B. Both require initial costs of $10,000
and last for 4 years. Project A has expected future cash flows of $4,000, $5,000,
$8,000 and $3,000, respectively. Project B has expected future cash flows of $8,000,
$9,000, $2,000 and -$3,000. If the required return for project A is 12% and the
required return for project B is 9%, which project should we start?
Choose project A because its NPV is higher than project B
Choose project B because its NPV is higher than project A
Choose project A because project B has negative future cash flows
Choose project A because its required return is higher than project A
Transcribed Image Text:We have two mutually exclusive projects A and B. Both require initial costs of $10,000 and last for 4 years. Project A has expected future cash flows of $4,000, $5,000, $8,000 and $3,000, respectively. Project B has expected future cash flows of $8,000, $9,000, $2,000 and -$3,000. If the required return for project A is 12% and the required return for project B is 9%, which project should we start? Choose project A because its NPV is higher than project B Choose project B because its NPV is higher than project A Choose project A because project B has negative future cash flows Choose project A because its required return is higher than project A
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