Which mutually exclusive project would you select, if both are priced at $1,000 and your discount rate is 15 percent; Project A with three annual cash flows of $1,000, or Project B, with three years of zero cash flow followed by three years of $1,500 annually?
A)Project A
B)Project B
C)You are indifferent since the NPVs are equal
D)Neither project should be selected

Question

Quizplus · Accepted Answer

Project A has a higher present value of cash flows when discounted at 15 percent compared to Project B. The cash flows from Project A come earlier, which means they are less affected by the discount rate compared to the delayed cash flows of Project B.

Which Mutually Exclusive Project Would You Select, If Both Are