Answer to Question #13011 in Management for John

Question

Projects A and B have the same expected lives and initial cash outflows.
However, one project’s cash flows are larger in the early years, while the other
project has larger cash flows in the later years. The two cash profiles are given
below:
NPV
A
B
k
Which of the following statements is most correct?
a. Project A has the smaller cash flows in the later years.
b. Project A has the larger cash flows in the later years.
c. We require information on the cost of capital in order to determine which
project has larger early cash flows.
d. The NPV profile graph is inconsistent with the statement made in the
problem.
e. None of the statements above is correct.

Answer 1

a. Project A has the smaller cash flows in the later years.
As it is seen from the task Project A has larger cash flows in the early years and smaller cash flows in the later years. Other answers are not appropriate for this question