Ace Inc Is Evaluating Two Mutually Exclusive Projects-Project a and Project

Multiple Choice

Ace Inc. is evaluating two mutually exclusive projects-Project A and Project B. The initial investment for each project is $50,000. Project A will generate cash inflows equal to $15,625 at the end of each of the next five years; Project B will generate only one cash inflow in the amount of $99,500 at the end of the fifth year (i.e., no cash flows are generated in the first four years) . The required rate of return of Ace Inc. is 10 percent. Which project should Ace Inc. purchase?

A) Neither project should be purchased, because neither has a positive net present value (NPV) .
B) Project B should be purchased because it has a higher net present value (NPV) than Project A.
C) Project A should be purchased because it will produce cash every year for five years.
D) Project A should be purchased because it has a positive net present value (NPV) .
E) Project A should be purchased because Project B does not generate cash flows during the first four years of its life.