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 their 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 percent.Using a replacement chain, which project should be chosen? Assume that in 5 years, Project A will still cost $120,000 and produce 5 more years of $37,000 annual net cash flows.

A) Project B.NPV of A is negative
B) Project A.NPV of B is negative
C) Project B.NPV is $492 higher
D) Project A.NPV is $6,468 higher