40

A manager has two mutually exclusive proposals. The initial proposal requires an investment of $350,000 today; and it provides a cash inflow at the end of year one of $400,000. The revised proposal requires an investment of $375,000 today; and it provides a cash inflows of $25,000 at the end of years one and two, and a cash flows of $475,000 at the end of year 3 . The applicable annual discount rate is 7%. A) The initial proposal should be accepted because it has an internal rate of 14.3\% (versus 12.6% for the revised proposal). B) The revised proposal should be accepted because it has a net present value of $57,942 (versus $23,832 for the initial proposal). C) both A and B D) either A or B, but not both E) neither A nor B A manager has two mutually exclusive proposals. The initial proposal requires an investment of $350,000 today; and it provides a cash inflow at the end of year one of $400,000. The revised proposal requires an investment of $375,000 today; and it provides a cash inflows of $25,000 at the end of years one and two, and a cash flows of $475,000 at the end of year 3 . The applicable annual discount rate is 7%. A) The initial proposal should be accepted because it has an internal rate of 14.3\% (versus 12.6% for the revised proposal). B) The revised proposal should be accepted because it has a net present value of $57,942 (versus $23,832 for the initial proposal). C) both A and B D) either A or B, but not both E) neither A nor B