Stock-X is evaluating two mutually exclusive projects. Project A has a net investment of $48,000 and net cash flows over a six-year period of $12,500 per year (that is reinvestment with the same cost and cash flow for another six years). Project B also has a net investment of $48,000, but its net cash flows of $8,640 per year will occur over a 12-year period. If Stock-X has a cost of capital of 14% for these projects, which project, if either, should be chosen, and what is its NPV? (7 Marks)


Question 2Answer

a.
Project B - with an NPV of $904.92


b.
Project A - with an NPV of $22,753.65


c.
Project A - with an NPV of $885.50


d.
Neither of these projects