Lakeland Ramblers is considering two mutually exclusive projects to boost their tourist revenue. Project A costs $60,000 and would produce net cash flows of $25,000 for 5 years. Project B costs $100,000 and will produce annual net cash flows of $25,000 for 10 years. If Lakeland's cost of capital is 12%, which project should be chosen using the equivalent annual annuity method?

Answer

a. Project B, as NPV is $11,125 higher b. Project A, as NPV is $17,941 higher c. Project B, as NPV is $21,567 higher d. Project A, as NPV is $28,383 higher