Answer:
Project A
Explanation:
Mutually exclusive projects are projects that cannot be executed together. Therefore, only one has to be chosen. To decide which one to choose between Project A and Project, we have to calculate their net present value as follows:
Calculation of NPV of Project A
Year (n) Cash Flow ($) DF = 1/(1.15)^n PV ($)
Year 0 (1,000.00) 1.0000 (1,000.00)
Year 1 1,000.00 0.8696 869.57
Year 2 1,000.00 0.7561 756.14
Year 3 1,000.00 0.6575 657.52
Project A NPV = 1,283.23
Calculation of NPV of Project B
Year (n) Cash Flow ($) DF = (1.15)^n PV ($)
Year 0 (1,000) 1.0000 (1,000.00)
Year 1 0 0.8696 0
Year 2 0 0.7561 0
Year 3 0 0.6575 0
Year 4 1,500 0.5718 857.63
Year 5 1,500 0.4972 745.77
Year 6 1,500 0.4323 648.49
Project B NPV = 1,251.89
Since the $1,283.23 net present value (NPC) of Project A is greater than the $1,251.89 NPV of project B, project A should be chosen.