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Which project should be accepted?

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Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows:

The required rate of return on these projects is 11 percent.

YEAR PROJECT A PROJECT B
0 -$100,000 -$100,000
1 32,000 0
2 32,000 0
3 32,000 0
4 32,000 0
5 32,000 $200,000

please answer:Which project should be accepted? Why? Please answer in paragraph form!

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Solution Summary

Which project should be accepted is determined.

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Summary: Project A provides a steady cash flow which affects the interest in a positive manner making the annual interest amount larger than that of Project B (assuming a simple interest of 11% paid at the end of the year on the available balance) until the end of year 5.

At the end of the first year Project A has a total of $146520 while Project B has a balance of $111000. At ...

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