You are evaluating two projects. You may accept only one of them. Proj

You are evaluating two projects. You may accept only one of them. Project one will cost $379,000 initially and will pay $134,000 each year for the next 5 years. Project two will cost $454,000 initially, but will pay $101,000 for the next 10 years.

The firm’s cost of capital is 15%. Compute the NPV of each project. Which project has the highest NPV and by how much? Round your answers to the nearest dollar.
A) Project 2 has a higher NPV by $17,293.
B) Project 2 has a higher NPV by $37,636.
C) Project 1 has a higher NPV by $17,293.
D) Project 1 has a higher NPV by $37,636.
E) The two projects have equal NPV.

ANSWER

C