Creative Furniture Is Considering Two Mutually Exclusive Projects That Would

Multiple Choice

Creative Furniture is considering two mutually exclusive projects that would automate part of its production facilities. Project A costs $120,000 and would produce net cash flows of $37,000 annually for 5 years. Project B also costs $120,000 and will produce annual net cash flows of $25,000 for 10 years. Creative's cost of capital is 11%. Assume that in 5 years, Project A will still cost $120,000 and produce 5 more years of $37,000 annual net cash flows. Using the equivalent annual annuity method, which project should be chosen?

A) Project B, as NPV is approximately $823 higher.
B) Project A, as NPV_B is negative.
C) Project B, as NPV is approximately $10,473 higher.
D) Project B, NPV is approximately $90.56 higher.