Question: Suppose you have the following two mutually exclusive projects that you can carry out on the corner of 39th Street and Walnut Street: Build a

Suppose you have the following two mutually exclusive projects that you can carry out on the corner of 39th Street and Walnut Street: Build a daycare center or a health spa.

Suppose the day care center has the following cash flows: An immediate cash outlay of $5,000 followed by inflows of $2500 in each of the next 3 years and zero thereafter.

Suppose the health spa has the following cash flows: An immediate outlay of $5000 followed by inflows of nothing in year one, $1000 in year 2 and $7100 in year 3 and zero thereafter.

1) If you base your investment decision on which investment has the highest NPV, which do you choose when the discount rate is 15%?

2) If you base your investment decision on which investment has the highest NPV, which do you choose when the discount rate is 5%?

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