Kaiwen is trying to decide between two equally beneficial projects for investment purposes

Economics May 27, 2021

Kaiwen is trying to decide between two equally beneficial projects for investment purposes. Project A requires an expenditure of $10,000 now and $700 for each of the next 5 years. Project B requires $12,000 now, $300 for each of the next 7 years, and an additional $1,200 eight years from now. If Kaiwen discount rate is 12% compounded annually, what is the net present value of the cost of each project? Which project do you recommend and why?

Expert Solution

As Project B has lower equivalent annual cost than Project A. So, Project A should be chosen.

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