You work for the 3T company, which expects to earn at least 18 percent on its investments. You have to choose between two similar projects. Below is the cash flow information for each project. Which of the two projects would you fund if the decision is based only on financial information? Why?
Project A:
Year 0: Inflow - $225,000, Outflow - $225,000, Netflow - $0
Year 1: Inflow - $190,000, Outflow - $190,000, Netflow - $0
Year 2: Inflow - $220,000, Outflow - $30,000, Netflow - $190,000
Year 3: Inflow - $215,000, Outflow - $0, Netflow - $215,000
Year 4: Inflow - $205,000, Outflow - $30,000, Netflow - $175,000
Year 5: Inflow - $197,000, Outflow - $0, Netflow - $197,000
Year 6: Inflow - $10,000, Outflow - $3,000, Netflow - $7,000
Year 7: Inflow - $1,087,000, Outflow - $505,000, Netflow - $582,000
Total Netflow - $1,366,000
Project B:
Year 0: Inflow - $300,000, Outflow - $530,000, Netflow - -$230,000
Year 1: Inflow - $50,000, Outflow - $100,000, Netflow - -$50,000
Year 2: Inflow - $100,000, Outflow - $350,000, Netflow - -$250,000
Year 3: Inflow - $150,000, Outflow - $0, Netflow - $150,000
Year 4: Inflow - $250,000, Outflow - $50,000, Netflow - $200,000
Year 5: Inflow - $20,000, Outflow - $250,000, Netflow - -$230,000
Year 6: Inflow - $250,000, Outflow - $200,000, Netflow - $50,000
Year 7: Inflow - $150,000, Outflow - $50,000, Netflow - $100,000
Total Netflow - -$460,000