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Evaluating Mutually Exclusive Projects

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As the director of capital budgeting for ABC Corporation, you are evaluating two mutually exclusive projects with the following net cash flows:

Cash Flows
A B
-$200,000 -$125,000
1 $65,000 $60,000
2 $60,000 $40,000
3 $50,000 $40,000
4 $65,000 $35,000
5 $50,000 $45,000
If ABC Corporation's cost of capital is 12 percent, defend which project would you choose.

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Solution Summary

The solution compares the present value between the two projects and gives an explanation why the particular project was chosen.

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PROJECTS PRESENT VALUE
A B 12% A ...

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