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isaac has analyzed two mutually exclusive projects that have 3-year lives. project a has an npv of $81,406, a payback period of 2.48 years, and an aar of 9.31 percent. project b has an npv of $82,909, a payback period of 2.57 years, and an aar of 9.22 percent. the required return for project a is 11.5 percent while it is 12 percent for project b. both projects have a required aar of 9.25 percent. isaac must make a recommendation and justify it in 15 words or less. what should his recommendation be?
isaac has analyzed two mutually exclusive projects that have 3-year lives. project a has an npv of $81,406, a payback period of 2.48 years, and an aar of 9.31 percent. project b has an npv of $82,909, a payback period of 2.57 years, and an aar of 9.22 percent. the required return for project a is 11.5 percent while it is 12 percent for project b. both projects have a required aar of 9.25 percent. isaac must make a recommendation and justify it in 15 words or less. what should his recommendation be?
Final answer:Isaac should recommendProject B,which, despite itslonger paybackperiod and higher required return, is forecast to have a higher NPV, indicating a more profitable investment.Explanation:Given the information, Isaac should recommendProject B. Both the projects have a required AAR of 9.25% which they both exceed. However, Project B, despite having a slightly longer payback period, provides a greater NPV (Net Present Value) which is a crucial financial indicator for investment profitability.The NPV measures the profitability of a project by calculating the difference between the present value of cash inflows and the present value of cash outflows over a period of time. A higher NPV indicates a more profitable investment.It's worth noting that the required return for Project B is higher thanProject A. This indicates that there is more risk associated withProject B. However, the higher NPV still makes it the preferable option. In sum, given the constraints of this analysis, the deciding factor would be the NPV, leading to a recommendation forProject B.Learn more aboutProject Analysishere:brainly.com/question/31123659#SPJ11...