Question: The following two mutually exclusive projects are being evaluated. The firm's required rate of return is 12%. Year Project A Cash Flow Project B Cash
The following two mutually exclusive projects are being evaluated. The firm's required rate of return is 12%.
| Year | Project A Cash Flow | Project B Cash Flow |
| 0 | -$48,000 | -$48,000 |
| 1 | 15,000 | 20,000 |
| 2 | 15,000 | 20,000 |
| 3 | 15,000 | 15,000 |
| 4 | 15,000 | 5,000 |
| 5 | 15,000 | 5,000 |
| 6 |
| 5,000 |
| 7 |
| 5,000 |
Which of the following statements best describes projects A and B?
Project B should be accepted because it has the highest EAA.
Neither project is acceptable.
Both projects should be accepted because they have positive NPVs and EAAs.
Project B should be accepted because it has the highest NPV.
Project A should be accepted because it has the highest EAA.
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