Chandler Tire Co. is trying to decide which one of two projects it should accept. Both...
Chandler Tire Co. is trying to decide which one of two projects it should accept. Both projects have the same start-up costs. Project 1 will produce annual cash flows of $54,000 a year for 6 years. Project 2 will produce cash flows of $48,000 a year for 8 years. The company requires a 15 percent rate of return. Which project should the company select and why?
Select one:
a. Project 1; because the annual cash flows are greater than those of Project 2
b. Project 1; because the present value of its cash inflows exceeds those of Project 2 by $14,211.62
c. Project 2; because the present value of the cash inflows exceeds those of Project 1 by $11,029.36
d. Project 2; because the total cash inflows are $70,000 greater than those of Project 1
e. It does not matter as both projects have almost identical present values.
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