Norman, Inc., is considering two mutually exclusive projects. Project A is a six

Question

Norman, Inc., is considering two mutually exclusive projects. Project A is a six-year project with a NPV of $3,000 and Project B is a four-year project with an NPV of $2,278. Project A has an equivalent annual cash flow of $730 and Project B has an equivalent annual cash flow of $750. Which project should the firm select?

A. Choose Project A because it has the higher NPV.

B. Choose Project B because it has the lower NPV.

C. Choose Project B because it has the higher equivalent annual cash flow.

D. Choose Project A because it has the lower equivalent annual cash flow.

Explanation / Answer

C. Choose Project B because it has the higher equivalent annual cash flow

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