Consider the following two mutually exclusive projects. The required rate of return is 11% for project A and 10% for project B. Which project should you accept and why?

Year Project A Project B

0 -$36,000, -$99,000

1 $13,800, $54,400

2 $23,475, $63,100

3 $ 8,775, $ 0

Answers:

A. project A; because its NPV is about $351 more than the NPV of project B

B. project B; because its NPV is about $702 more than the NPV of project A

C. project B; because its NPV is about $1386 more than the NPV of project B

D. project A; because its IRR is about 14.2%

E. project A; because both projects have NPVs $2000, but project A has a higher expected return