Your Company Is Considering an Investment in One of Two

Multiple Choice

Your company is considering an investment in one of two mutually exclusive projects.Project 1 involves a labor intensive production process.Initial outlay for Project 1 is $1,495 with expected after-tax cash flows of $500 per year in years 1-5.Project 2 involves a capital intensive process,requiring an initial outlay of $6,704.After-tax cash flows for Project 2 are expected to be $2,000 per year for years 1-5.Your firm's discount rate is 10%.If your company is not subject to capital rationing,which project(s) should you take on?

A) Project 1
B) Project 2
C) Projects 1 and 2
D) Neither project is acceptable.