Suppose you consider 2 mutually exclusive projects A and B. Both projects have conventional cash flows and identical initial investments. Project A has cash flows that gradually increase from one period to the next, while cash flows of project B gradually decline. Both projects have the 5 years of life. Given current positive discount rate, both projects have the same positive NPV.

Mr. Powell will increase interest rate next week, which will increase the discount rate.

Which of the following is true?

I. Project B will likely have higher NPV than project A if, indeed, discount rate increases?

II. Project A will likely have higher NPV than project B if, indeed, discount rate increases?

		Cannot say without additional information.
		II only
		I only