HH Companies has identified two mutually exclusive projects. Project A has cash flows of −$40,000, $21,200, $16,800, and $14,000

Question

3 years ago

6

HH Companies has identified two mutually exclusive projects. Project A has cash flows of −$40,000, $21,200, $16,800, and $14,000

for Years 0 to 3, respectively. Project B has a cost of $38,000 and annual cash inflows of $25,500 for 2 years. At what rate would you be indifferent between these two projects?

Business

1 answer:

gulaghasi [49] · Answer 1 · 2022-06-15T06:52:49+03:00

Answer:

At any rate.

Explanation:

The function to calculate the NPV of each project is the same, therefore it is not expected that potential NPV of projects meet in any time in the future, so always would be a project better than the other regardless the discount rate used. In this case, the project B will be always better than project A