You are considering the following two projects which are mutually exclusive. The required return on each project is 14%. Which project should you accept and what is the best reason for that decision? Year       Project A        Project B 0            $-46,000        $-46,000 1            $25,000         $11,000 2            $18,000         $19,000 3            $16,000         $32,000 a) Both Project A and B since they both have positive NPV b) Project A, because it has the higher profitability index c) Project A, because it has the higher net present value d) Project B, because it has the higher net present value

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 15P
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You are considering the following two projects which are mutually exclusive. The required return on each project is 14%. Which project should you accept and what is the best reason for that decision?

Year       Project A        Project B

0            $-46,000        $-46,000

1            $25,000         $11,000

2            $18,000         $19,000

3            $16,000         $32,000

a) Both Project A and B since they both have positive NPV
b) Project A, because it has the higher profitability index
c) Project A, because it has the higher net present value
d) Project B, because it has the higher net present value
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