Consider the following two mutually exclusive projects Project A with an initial cost of $1000 and a return of $505 per year for 3 years with no salvage value Project B with an initial cost of $11000 and a return of $5000 per year for 3 years with no salvage value The minimum rate of return is 10 1...

Project A NPV 1000 50511 505 11 2 50511 3 NPV 25586 IR ...

Consider the following two mutually exclusive projects: Project A with an initial cost of $1000 and

Question:

Consider the following two mutually exclusive projects:
• Project A with an initial cost of $1000 and a return of $505 per year for 3 years with no .
• Project B with an initial cost of $11000 and a return of $5000 per year for 3 years with no
The minimum rate of return is 10%.
1. Which is the preferred project using NPV?
2. Which is the preferred project using IRR?
3. Discuss your evaluations if the two projects are independent.
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...