Question: P-2. Good old XYZorp (they're back!) is considering two mutually exclusive projects, A & B in order to expand their product line. After letting the
P-2. Good old XYZorp (they're back!) is considering two mutually exclusive projects, A & B in order to expand their product line. After letting the cost accountants out of their cages, it was determined that project A's initial investment must be $42,400, while project B will cost $60,000. Project A has projected cash inflows of $25,000 per year for three years. Project B's inflows are more variable: $10,000 in year 1; $30,000 in year 2; and $40,000 in its final year. You have determined the following: the Prime is 7%, LIBOR is 6%, the firm's cost of capital is 12%. Using NPV analysis, if the NPV for project B = + $ 1,320 (yes, I ddi the computation for you!), which project do you prefer?
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