Question: The expected cash flows from 2 mutually exclusive projects, A and B, are as follows. Project A Year Cash flow 0 -20.000 1 + 5000

The expected cash flows from 2 mutually exclusive projects, A and B, are as follows.

Project A

Year

Cash flow

0

-20.000

1

+ 5000

2

+5000

3

+10.000

Project B

Year

Cash flow

0

-20.000

1

+ 5.000

2

+2.000

3

-1.000

4.

+14.000


 If the initial investment for both projects is $20,000 and a company will only invest in one of them, which project should it choose?

A. Draw the Cash Flow Chart for the table below. Suppose i = 8%

B. Decide using current value analysis technique. Show all the steps of your decision.

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