Projects A and B are mutually exclusive and have an initial cost of $82,000 each. Project A provides cash inflows of $34,000 a year for three years while Project B produces a cash inflow of $115,000 in Year 3. Which project(s) should be accepted if the discount rate is 11.7 percent

Project B , because it has highest positive net present value.

Explanation:

Since the projects have different cash inflows and the timing of those cash flows are different, use the net present value techniques to compare the projects.

Project A

Using a Financial Calculator enter the values

Cfo = - $82,000

Cf1  =   $34,000

Cf2 =   $34,000

Cf3 =    $34,000

i = 11.7%

Net Present Value = $85.0989

Project B

Cfo = - $82,000

Cf1  =   $0

Cf2 =   $0

Cf3 =    $115,000

i = 11.7%

Net Present Value = $516.0292

Choose the Project giving the highest positive net present value.

Therefore choose Project B,

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