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1) You are considering the following two mutually exclusive projects
1)
You are considering the following two mutually exclusive projects. The required return on each project is 12 percent. Which project should you accept and what is the best reason for that decision?
Project A Project B
Year 0 -$10,000 -$20,000
Year 1 $ 3,000 $ 5,000
Year 2 $ 8,000 $ 7,000
Year 3 $ 4,000 $12,000
Year 4 $ 2,000 $10,000
2) a) You are considering the following two mutually exclusive projects. The required return on each project is 15 percent. Which project should you accept and what is the best reason for that decision?
Project A Project B
Year 0 -$15,000 -$30,000
Year 1 $ 5,000 $12,000
Year 2 $ 6,000 $11,000
Year 3 $ 7,000 $10,000
Year 4 $ 8,000 $ 9,000
b) According to the textbook, the net present value rule states that "An investment should be accepted if the net present value is positive and rejected if it is negative." What does a net present value of zero mean? If you were analyzing a project with a zero net present value, would you accept or reject that project? Why?
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Expert Solution
b) NPV of zero mean you are neutral between to accept or reject project. Its your choice to accept or reject project at 0 NPV as its a no profit no loss situation. You will accept the project at 0 NPV as it may provides other qualitative benefit such as increase market share, increased productivity etc .
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