A financial consultant evaluates two investment projects with equal initial capital requirements of €100,000. Project Alpha yields €30,000 at the end of Year 1, €40,000 Year 2, and €50,000 Year 3 (undiscounted). Project Beta yields €60,000 Year 1, €40,000 Year 2, and €20,000 Year 3. At a positive annual discount rate of 10%, which project has a higher Net Present Value (NPV)?
- AProject Beta, because it receives cash flows earlier in the project timeline.
- BProject Alpha, because its total cash inflow is higher.
- CBoth projects have identical NPV since total nominal cash flows equal €120,000.
- DProject Alpha, because year 3 cash flow is the largest single inflow.