Your company is considering two mutually exclusive projects. Project A has an initial cost of $80,000 and generates expected cash flows of $25,000 per year for six years. Project B has an initial cost of $80,000 and generates expected cash flows of $60,000 per year for two years. The firm's cost of capital is 12.00%. Determine which project you would choose. Group of answer choices Choose B since the equivalent annuity payment is $12,664. Choose A since the equivalent annuity payment is $5,542. Choose B since the NPV is $22,785. Choose A since the NPV is $21,403.5. Cannot decide since two projects do not have equal life.
Your company is considering two mutually exclusive projects. Project A has an initial cost of $80,000 and generates expected cash flows of $25,000 per year for six years. Project B has an initial cost of $80,000 and generates expected cash flows of $60,000 per year for two years. The firm's cost of capital is 12.00%. Determine which project you would choose. Group of answer choices Choose B since the equivalent annuity payment is $12,664. Choose A since the equivalent annuity payment is $5,542. Choose B since the NPV is $22,785. Choose A since the NPV is $21,403.5. Cannot decide since two projects do not have equal life.
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
Section: Chapter Questions
Problem 1PS
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Your company is considering two mutually exclusive projects. Project A has an initial cost of $80,000 and generates expected cash flows of $25,000 per year for six years. Project B has an initial cost of $80,000 and generates expected cash flows of $60,000 per year for two years. The firm's cost of capital is 12.00%. Determine which project you would choose.
Group of answer choices
Choose B since the equivalent annuity payment is $12,664.
Choose A since the equivalent annuity payment is $5,542.
Choose B since the NPV is $22,785.
Choose A since the NPV is $21,403.5.
Cannot decide since two projects do not have equal life.
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