Giant Equipment Ltd. is considering two projects to invest next year. Both projects have the same start-up costs. Project A will produce annual cash flows of $42,000 at the beginning of each year for eight years. Project B will produce cash flows of $48,000 at the end of each year for seven years. The company requires a 12% return. Required: a) Which project should the company select and why?  b) Which project should the company select if the interest rate is 14% at the cash flows in Project B is also at the beginning of each year?

Question

Giant Equipment Ltd. is considering two projects to invest next year. Both projects have the same
start-up costs. Project A will produce annual cash flows of $42,000 at the beginning of each year for
eight years. Project B will produce cash flows of $48,000 at the end of each year for seven years. The
company requires a 12% return.
Required:
a) Which project should the company select and why? 
b) Which project should the company select if the interest rate is 14% at the cash flows in Project B
is also at the beginning of each year?

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