Assume that ABCDEFG Corp. can either invest in Project A or Project B. Project A requires...

 

Transcribed Image Text:

Assume that ABCDEFG Corp. can either invest in Project A or Project B. Project A requires the initial investment of $51,000 and will generate $15,000 at Year 1, $14,500 at Year 2, $13,000 at Year 3, $14,000 at Year 4, $15,000 at Year 5, and $16,000 at Year 6. Project B will require the initial investment of $60,000 and will generate $11,000 at Year 1, $21,000 at Year 2, $12,000 at Year 3, $10,000 at Year 4, $8,000 at Year 5, and $50,000 at Year 6. If the interest/discount rate for both project is 11.2%, which of these two project is a better option if the decision is being made based on the Net Present Value (NPV) basis? Assume the firm needs to make a "mutually exclusive" decision where taking both projects is not an option because of the firm's inability (i.e. lack of resources) to do so. Assume that ABCDEFG Corp. can either invest in Project A or Project B. Project A requires the initial investment of $51,000 and will generate $15,000 at Year 1, $14,500 at Year 2, $13,000 at Year 3, $14,000 at Year 4, $15,000 at Year 5, and $16,000 at Year 6. Project B will require the initial investment of $60,000 and will generate $11,000 at Year 1, $21,000 at Year 2, $12,000 at Year 3, $10,000 at Year 4, $8,000 at Year 5, and $50,000 at Year 6. If the interest/discount rate for both project is 11.2%, which of these two project is a better option if the decision is being made based on the Net Present Value (NPV) basis? Assume the firm needs to make a "mutually exclusive" decision where taking both projects is not an option because of the firm's inability (i.e. lack of resources) to do so.