A firm utilizes a strategy of capital rationing, which is currently $375,000 and is considering the following two projects: Project A has a cost of $335,000 and the following cash flows: year 1 $140,000; year 2 $150,000; and year 3 $100,000. Project B has a cost of $365,000 and the following cash flows: year 1 $220,000; year 2 $110,000; and year 3 $150,000. Using a 6% cost of capital, what is the net present value of project A?
A) $25,930
B) $14,520
C) $11,589
D) $19,230
B) $14,520
Project A
?335,000 Factor @ 6% 349,520 14,520
140,000 0.943 132,020
150,000 0.89 133,500
100,000 0.84 84,000
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