Question: Projects A and B are mutually exclusive and have an initial cost of $78,000 each. Project A has annual cash flows for Years 1 to

Projects A and B are mutually exclusive and have an initial cost of $78,000 each. Project A has annual cash flows for Years 1 to 3 of $10,000, $15,000, and $87,000,

respectively. Project B has annual cash flows for Year 1 of $78,000 and $15,000 for Year 2.

a) What is the NPV of the project at 12%? What is the IRR? Which project would you select? If there is a cross-over rate, estimate it.

b) Which project would you select using the NPV method at 12% after adjusting for the unequal lives?

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