Both Project A and project B require a $20,000 net investment. Project A generates cash flows of $10,000 each year for four years. Project B generates a $60,000 cash flow in year 4. The discount rate is 10%. The NPV for A is $11,698.65 and the NPV for B is $20,980.80. The IRR for A is 34.9% and the IRR for B is 31.61%. If the projects are mutually exclusive, what is your recommendation?
Multiple Choice
Accept B because the NPV for B is greater than the NPV for A.
Accept both because they both have positive NPVs and the IRRs are greater than the discount rate.
Accept A because the IRR for A is greater than the IRR for B.
Choose A because the cash flows occur earlier and the time value of money says that current dollars are worth more than future dollars.