Projects A and B have the same expected lives and initial cash outflows.However,one project's cash flows are larger in the early years,while the other project has larger cash flows in the later years.The two NPV profiles are given below: Which of the following statements is correct?

Question

Projects A and B have the same expected lives and initial cash outflows.However,one project's cash flows are larger in the early years,while the other project has larger cash flows in the later years.The two NPV profiles are given below:  Which of the following statements is correct?

Quizplus · Accepted Answer

Looking at the NPV profiles, we can see that Project A has larger cash flows in the early years and smaller cash flows in the later years. On the other hand, Project B has smaller cash flows in the early years and larger cash flows in the later years. Therefore, statement A is incorrect. Statement C is also incorrect as we do not require information on the required rate of return to determine which project has larger early cash flows. Finally, the NPV profile graph is consistent with the problem statement. The correct statement is that Project A has larger cash flows in the early years, which makes statement B correct. Therefore, the answer is B.

Projects a and B Have the Same Expected Lives and Initial