Question: Interstate Appliance Inc. is considering the following two mutually exclusive projects. Projected cash flows for these ventures are as follows: Plan A IO CF1 CF2

Interstate Appliance Inc. is considering the following two mutually exclusive projects. Projected cash flows for these ventures are as follows:

Plan A
IO CF1 CF2 CF3 CF4 CF5
3,600,000 0 0 0 0 7,000,000
Plan B
IO CF1 CF2 CF3 CF4 CF5
3,500,000 1,000,000 0 2,000,000 2,000,000 1,000,000

If Interstate Appliance has a 12% cost of capital, what decision should be made regarding the projects above?

a. Accept plan A.

b. Accept plan B.

c. Reject both plans A and B.

d. A and B are indifferent.

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