HH Companies has identified two mutually exclusive projects. Project A has cash flows of - $40,000, $21,200, $16,800, and $14,000 for Years 0 to 3, respectively. Project B has a cost of $38,000 and annual cash inflows of $25,500 for 2 years. At what rate would you be indifferent between these two projects?

A. 6.34%

B. - 1.72%

C. 9.41%

D. - 4.38%

E. 8.28%

Question

Business

Susan Lawson

28 October, 14:03

HH Companies has identified two mutually exclusive projects. Project A has cash flows of - $40,000, $21,200, $16,800, and $14,000 for Years 0 to 3, respectively. Project B has a cost of $38,000 and annual cash inflows of $25,500 for 2 years. At what rate would you be indifferent between these two projects?

A. 6.34%

B. - 1.72%

C. 9.41%

D. - 4.38%

E. 8.28%

+5

Answers (1)

Know the Answer?

Tony Warren · Answer 1

At the rate 6.34% would be indifferent between these two projects.

Answer: Option A.

Explanation:

Rate of interest is the rate a bank or other loan specialist charges to obtain its cash, or the rate a bank pays its savers for keeping cash in a record. The yearly financing cost is the rate over a time of one year.

An interest rate is the level of chief charged by the bank for the utilization of its cash. The chief is the measure of cash credited. Since banks acquire cash from you (as stores), they likewise pay you a loan cost on your cash.