Answer: A.) Project A, because it has a higher present value than project B.
B.) Project B
Explanation:
Particulars --------- project A ----------- project B
Annual cash flow -- 42000 ------------ 48000
Interest rate --------- 12% ----------------- 12%
Number of years ---- 8 -------------------- 7
Calculating the present value of both projects using a financial calculator :
At 12% rate of return :
PV of project A = $233,677.77
PV of project B = $219,060.31
B.) At 14% rate of return:
PV of project A = $222,108.80
PV of project B = $234,656.04
