You are considering two independent projects that have differing requirements. Project A has a required return of 12 percent compared to Project B’s required return of 13.5 percent. Project A costs $75,000 and has cash flows of $21,000, $49,000, and $12,000 for Years 1 to 3, respectively. Project B has an initial cost of $70,000 and cash flows of $15,000, $18,000, and $41,000 for Years 1 to 3, respectively. Given this information, you should:

To determine which project you should choose based on the given information, you need to calculate the net present value (NPV) for each project. The NPV takes into account the time value of money and helps you determine the value of the project in today's dollars.

To calculate the NPV, you need to discount the future cash flows of each project to their present value by using the required return rates.

Let's calculate the NPV for Project A:

1. Calculate the present value (PV) of each cash flow:
PV1 = $21,000 / (1 + 0.12)^1 = $18,750
PV2 = $49,000 / (1 + 0.12)^2 = $39,007.94
PV3 = $12,000 / (1 + 0.12)^3 = $7,913.25

2. Calculate the total present value:
NPV_A = PV1 + PV2 + PV3 - Initial cost
= $18,750 + $39,007.94 + $7,913.25 - $75,000
= -$9,328.81

Now, let's calculate the NPV for Project B:

1. Calculate the present value (PV) of each cash flow:
PV1 = $15,000 / (1 + 0.135)^1 = $13,274.34
PV2 = $18,000 / (1 + 0.135)^2 = $13,348.77
PV3 = $41,000 / (1 + 0.135)^3 = $27,184.72

2. Calculate the total present value:
NPV_B = PV1 + PV2 + PV3 - Initial cost
= $13,274.34 + $13,348.77 + $27,184.72 - $70,000
= $-16,192.17

Based on the calculated NPVs, you should choose Project A because it has a higher NPV (-$9,328.81) than Project B ($-16,192.17). A higher NPV indicates that the project's value exceeds its cost, resulting in a greater potential for profitability.