Problem:
A company is considering two mutually exclusive projects (project A and B). The following shows the expected cash flows:
Year Project A Project B
0 -30,000 -60,000
1 10,000 20,000
2 10,000 20,000
3 10,000 20,000
4 10,000 20,000
5 10,000 20,000
Cost of capital=14%
Using one of the capital budgeting techniques (ie, NPV, IRR, Profitability Index, or Payback period), explain which is the preferred project.