Year Project A (CF) Project B (CF)

0 -5000 -5000

1 +2000 +2500

2 +3000 +2000

3 +4000 +5000

If the projects are independent and the cost of capital is 10 percent:

(a) Project B is preferable because the NPV is higher.

(b) Project A is preferable because the Payback is quicker.

(c) Both projects are acceptable since each has NPV>0.

(d) Both projects are acceptable if management policy is to accept all projects with a payback period of less than 2 years.

(e) Neither A or B would be acceptable choices