Project I has an initial cash outflow of $18,300 and annual cash flows of $8,700 for Years 1 to 3.Project II has an initial cash outflow of $25,400 and annual cash flows of $10,500 for Years 1 to 3.These projects are mutually exclusive.The required rate of return is 11 percent.Based on the incremental NPV_{(II - I),} which project(s)should be accepted and why? A)Project II;because the incremental NPV_{(II - I)} is negative B)Project I;because both the incremental NPV_{(II - I)} and NPV_I are positive C)Both Project I and II;because both project NPVs are positive D)Project II;because it has the larger NPV E)Project I;because the incremental NPV_{(II - I)} is negative and NPV_I is positive

Question

Quizplus · Accepted Answer

Incremental cash flows:Time 0: -$25,400 - (-$18,300)= -$7,100Years 1 to 3: $10,500 - 8,700 = $1,800Incremental NPV_{(II - I)} = -$7,100 + $1,800/1.11 + $1,800/1.11² + $1,800/1.11³ = -$2,701.31NPV_I = -$18,300 + $8,700/1.11 + $8,700/1.11² + $8,700/1.11³ = $2,960.32

Project I Has an Initial Cash Outflow of $18,300 and Annual