Problem:
Use the information below to answer the following question(s).
Consider the following two mutually exclusive projects, each of which requires an initial investment of $30,000 and both provide cash inflows of $60,000 as shown below. This organization has a 15% cost of capital.
Year Project A Project B
0 ($30,000) ($30,000)
1 $30,000 $10,000
2 20,000 20,000
3 10,000 30,000
Using the net present value criterion, which is the most desirable project?
a. Project B
b. Project A
c. Both projects A and B are equally acceptable.
d. The desirability cannot be determined using the current information.