Which mutually exclusive project would you select,if both are priced at $1,000 and your required return is 15%: Project A with three annual cash flows of $1,000; or Project B,with 3 years of zero cash flow followed by 3 years of $1,500 annually?
A) Project A
B) Project B
C) You are indifferent since the NPVs are equal.
D) Neither project should be selected.

Question

Quizplus · Accepted Answer

NPV_A = −$1,000 + $1,000[(1 / 0.15) − 1 / 0.15(1.15)³] = $1,283.23NPV_B = −$1,000 + {$1,500[(1 / 0.15) − 1 / 0.15(1.15)³]} / 1.15³ = $1,251.89

Which Mutually Exclusive Project Would You Select,if Both Are Priced