SOA Exam FM Sample Question 124
Study guide: Exam FM-2
Company X received approval to start no more than two projects in the current calendar year.
Three different projects were recommended, each of which requires an investment of 800 to be made at the beginning of the year.
The cash flows for each of the three projects are as follows:
| End of year | Project A | Project B | Project C |
|---|---|---|---|
| 1 | 500 | 500 | 500 |
| 2 | 500 | 300 | 250 |
| 3 | −175 | −175 | −175 |
| 4 | 100 | 150 | 200 |
| 5 | 0 | 200 | 200 |
The company uses an annual effective interest rate of 10% to discount its cash flows.
Determine which combination of projects the company should select.
- A) Projects A and B
- B) Projects B and C
- C) Projects A and C
- D) Project A only
- E) Project B only
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