You are presented with two proposal, A and B, with equal risk that require initial investment of $9,000 and $7,000 Subsequent net cash inflows are given as followed Year Project A Project B 1 $3,250 $2,500 2 3500 2,500 3 3500 3,000 4 3500 3,000 Assuming 14 cost of capital, rank the two projects in terms of Incremental rate of return Net present value How do you account for the difference in ranking Which project do you prefer Why

Question: You are presented with two-proposal, A and B, with equal risk that require initial investment of $9,000 and $7,000. Subsequent net cash inflows are given

You are presented with two-proposal, A and B, with equal risk that require initial investment of $9,000 and $7,000. Subsequent net cash inflows are given as followed

Year	Project A	Project B
1	$3,250	$2,500
2	3500	2,500
3	3500	3,000
4	3500	3,000

Assuming 14% cost of capital, rank the two projects in terms of:

-Incremental rate of return

-Net present value

How do you account for the difference in ranking? Which project do you prefer? Why?

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