Transcribed Image Text
Consolidated Inc. uses a weighted average cost of capital of 12%to evaluate average-risk projects and adds/subtracts two percentagepoints to evaluate projects of greater/lesser risk. Currently, twomutually exclusive projects are under consideration. Both have acost of $200,000 and last four years. Project A, which is riskierthan average, will produce annual after-tax cash flows of $71,000.Project B, which has less-than-average risk, will produce after-taxcash flows of $146,000 in Years 3 and 4 only. What shouldConsolidated do?a. Accept neither project since both NPVs are less thanzero.b. Accept Project A with an NPV of $15,652.c. Accept both projects since both NPVs are greater thanzero.d. Accept Project A with an NPV of $6,874.e. Accept Project B with an NPV of $9,412.