ABC has been considering two mutually exclusive projects with the following NPVs and project lives.
Project NPV Economic Life
A 5,000 3 years
B 6,500 5 years
ABC’s cost of capital is 15%. Assuming that projects can be repeated with the same cash flow and risk profiles what would be the respective Net Terminal Values of projects A and B (round to the next integer)? What should be the decision?
A. 14,599 and 12,927, Accept A
B. 2,190 and 1,939, Accept A
C. Accept both A and B
D. 33,333 and 43,333, Accept B