Answer:
I will accept Project "B."
Explanation:
Though, Project B has a higher required Return on Investment ROI which is 13.5% but has a progressive increasing cash flow of Project B has an initial cost of $70,000 and cash flows of $15,000, $18,000, and $41,000 for Years 1 to 3, respectively.
<em>Analysis of the Cash Flow: </em>
<em>$18,000.00 - $15,000.00 = $3,000.00</em>
<em>$41,000.00 - $18000.00 = $23,000.00.</em>
<em>∴ with Initial Outlay of $70,000.00</em>
<em>$3,000.00 + $23,000.00 = $26,000.00</em>
<em>while </em>
<em>Project A has a retrogressive trend of cash flow of $21,000.00</em>
<em>∴$49,000.00 - $21,000.00 = $28,000.00</em>
<em>$28,000.00 - $12,000.00 = $16,000.00</em>
<em />
<em>Therefore comparing the two figures from Project A & B respectively:</em>
<em>Project A = $16,000.00</em>
<em>Project B = $26,000.00</em>
<em>It shows a deficit of $10,000.00 for Project B & surplus of $10,000.00 for Project A in the 3 years of required ROI.</em>
