Question: Year Project A (CF) Project B (CF) 0 -5000 -5000 1 +2000 +2500 2 +3000 +2000 3 +4000 +5000 The cost of capital is 10

Year Project A (CF) Project B (CF)

0 -5000 -5000

1 +2000 +2500

2 +3000 +2000

3 +4000 +5000

The cost of capital is 10 percent. Under the NPV method, which is the correct statement assuming A and B are mutually exclusive? (some rounding error is ok)

(a) Project A is preferable because the NPV is higher by $230.

(b) Project B is preferable because the NPV is higher by $380.

(d) Project B is preferable because the NPV is higher by $500.

(e) Either A or B would be acceptable choices

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