Lolastar Co. is evaluating two competing investment projects. They both require an investment of $25 million. The company cost of capital is 10 percent for projects of this type. The expected cash flows are as follows:

a. Which of the two projects would you recommend? Why?
b. Will your choice be the same whatever the cost of capital?

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Project I (millions) Project I (millions) $ 3 End-of-Year 1 End-of-Year 2 End-of-Year 3 End-of-Year 4 End-of-Year 5 Total cash flows $12 10 13 %39 $3s