Question

Use the following for Questions 1 - 5:

You are considering two mutually exclusive projects, A and B.

Project A costs $60,000 and generates cash flows of $9,000 for 10 years.

Project B costs $60,000 and generates cash flows of $2,000 for seven years and then cash flows of $27,000 for three years.

Report rates in percentage form to two decimal places i.e. 10.03% not 10%

Question 1 (3 points)

Calculate what discount rate would make you indifferent between choosing one project or another. i.e. what discount rate produces the same NPV for both projects?

Question 1 options:

Question 2 (1 point)

Which project would you ACCEPT if your discount rate was 1%?

Question 2 options:

A)

Project A

B)

Project B

C)

Both Project A and B

D)

Neither Project A or B

Question 3 (1 point)

Which project would you ACCEPT if your discount rate was 5%?

Question 3 options:

A)

Project A

B)

Project B

C)

Both Project A and B

D)

Neither Project A or B

Question 4 (1 point)

Which project would you ACCEPT if your discount rate was 10%?

Question 4 options:

A)

Project A

B)

Project B

C)

Both Project A and B

D)

Neither Project A or B

Question 5 (2 points)

What is the highest discount rate in which you can still produce a non-negative NPV for at least one project?

Answer 1

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