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Question
Virus Stopper Inc., a supplier of computer safeguard systems, uses a required rate of return of 12 percent to evaluate average risk projects, and it adds or subtracts 2 percentage points to evaluate projects of more or less risk. Currently, two mutually exclusive projects are under consideration. Both have a cost of $200,000 and will last 4 years. Project A, a riskier-than-average project, will produce annual end of year cash flows of $71,104. Project B, of less than average risk, will produce cash flows of $146,411 at the end of Years 3 and 4 only. Virus Stopper should accept
a. B with a NPV of $10,001.
b. Both A and B because both have NPVs greater than zero.
c. B with a NPV of $8,042.
d. A with a NPV of $7,177.
e. A with a NPV of $15,968.
Answer
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