Assume a firm is considering to invest and it has estimated the cash outflows (costs) and cash inflows of the underlined projects as follows. The projects have a five year life.
year Project A cash flows Project B cash flows
0 ($8,000) ($8,000)
1 12,625 0
2 0 5,000
3 15,625 0
4 0 0
5 100,625 130,000
Task: If the required rate of return on these projects is 8%, which project would be acceptable and why? Base your decision on NPV calculations.