Question: Suppose you are evaluating two mutually exclusive projects, Project A and Project B, with the following cash flows: End-of-year cash flows Year Project A Project

Suppose you are evaluating two mutually exclusive projects, Project A and Project B, with the following cash flows:

End-of-year cash flows

Year Project A Project B
2000 -10,000 -10,000
2001 3,293 0
2002 3,293 0
2003 3,293 0
2004 3,293 14,641

(a) if the cost of capital on both project is 5%, which project, if any would you choose? Why?

(b) if the cost of capital on both project is 8%, which project, if any would you choose? Why?

(c) If the cost of capital on both project is 11%, which project, if any would you choose? Why?

(d) If the cost of capital on both project is 14%, which project, if any would you choose? Why?

(e) At what discount rate would you be different between choosing Project A and Project B?

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