AC Slater and Zach Morris are partners in a firm. They are trying to decide on a

Question

AC Slater and Zach Morris are partners in a firm. They are trying to decide on a new project to take on, but they can only afford one project. They both have favorites as listed in the table below. Assuming a 10% discount rate, which project should they choose? Investment Year 1 Year 2 Year 3 Year 4 AC’s -400 200 200 200 Zach’s -500 175 175 175 175

Question 2 options:

A.) Zach’s because it has the highest NPV

B.)AC’s because it has the highest NPV

C.)Zach’s because the initial investment is lower

D.)Neither, both NPV’s are too low.

Explanation / Answer

AC NPV=-400+200/1.10^1+200/1.10^2+200/1.10^3=97.37

zach =-500+175/1.10^1+175/1.10^2+175/1.10^3+175/1.10^4=54.73

answer

B.)AC’s because it has the highest NPV

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