Project I has an initial cash outflow of $18,300 and annual cash flows of $8,700 for Years 1 to 3.Project II has an initial cash outflow of $25,400 and annual cash flows of $10,500 for Years 1 to 3.These projects are mutually exclusive.The required rate of return is 11 percent.Based on the incremental NPV₍_{II - I)} which project(s)should be accepted and why? A)Project II; because the incremental NPV₍_{II - I)} is negative. B)Project I; because both the incremental NPV₍_{II - I)}and NPV_I are positive. C)Both Project I and II; because both project NPVs are positive. D)Project II; because it has the larger NPV. E)Project I; because the incremental NPV₍_{II - I)} is negative and NPV_I is positive.

Question

Quizplus · Accepted Answer

Incremental cash flows: Time 0: -$25,400 - (-$18,300)= -$7,100 Years 1 to 3: $10,500 - $8,700 = $1,800 Incremental NPV₍_{II - I)} = -$7,100 + $1,800 / 1.11 + $1,800 / 1.11² + $1,800 / 1.11³ = -$2,701.31 NPV_I = -$18,300 + $8,700 / 1.11 + $8,700 / 1.11² + $8,700 / 1.11³ = $2,960.32

Project I Has an Initial Cash Outflow of $18,300 and Annual