Which of the two project below would you pursue, if you based the decision on ROI (Discount rate: 10%) ? Project 1 had a cash flow as follows: Year 0: - 5K, Year 1: 3K, Year 2: 2K, Year 3: 1K Project 2 had a cash flow as follows: Year 0: - 7K, Year 1: 5K, Year 2: 3K, Year 3: 2K

Project 2 should be accepted as it's net present value (NPV) is higher

Explanation:

Project 1

Year Cash Flows Discounting factor @10% Present Value (in $)

0 (5000) 1 (5000)

1 3000 0.909 2727

2 2000 0.826 1652

3 1000 0.751 751

NPV $130

Year Cash Flows Discounting Factor @10% Present value (in $)

0 (7000) 1 (7000)

1 5000 0.909 4545

2 3000 0.826 2478

3 2000 0.751 1502

NPV $1525

Note: Cash flows in brackets denote cash outflows or negative cash flows.