Reference no: EM132598786

Question 1: You are considering the following two mutually exclusive projects. The required return on each project is 12 percent. Which project should you accept and what is the best reason for that decision?

                           Project A               Project B

Year 0              -$10,000            -$20,000

Year 1                $ 3,000               $ 5,000

Year 2              $ 8,000                  $ 7,000

Year 3                $ 4,000                $12,000

Year 4                 $ 2,000                  $10,000

Question 2: a) You are considering the following two mutually exclusive projects. The required return on each project is 15 percent. Which project should you accept and what is the best reason for that decision?

                   Project A                      Project B

Year 0        -$15,000                   -$30,000

Year 1            $ 5,000                   $12,000

Year 2                $ 6,000                $11,000

Year 3                 $ 7,000                  $10,000

Year 4                  $ 8,000                  $ 9,000

b) According to the textbook, the net present value rule states that "An investment should be accepted if the net present value is positive and rejected if it is negative." What does a net present value of zero mean? If you were analyzing a project with a zero net present value, would you accept or reject that project? Why?