A company is considering two mutually exclusive investment projects. Each requires an initial investment of $25,000. Project A will generate an annual profit of $6000 for eight years and have a residual value of $5000. Project B's profits are more irregular: $15,000 in the first year, $19,000 in the fifth year, and $24,000 (including the residual value) in the eighth year. Which project should be chosen if the required return on investment is 15% compounded annually?

Question

Quizplus · Accepted Answer

The Answer of A company is considering two mutually exclusive investment projects. Each requires an initial investment of $25,000. Project A will generate an annual profit of $6000 for eight years and have a residual value of $5000. Project B's profits are more irregular: $15,000 in the first year, $19,000 in the fifth year, and $24,000 (including the residual value) in the eighth year. Which project should be chosen if the required return on investment is 15% compounded annually?

A Company Is Considering Two Mutually Exclusive Investment Projects