Question
In: Finance
The following are the cash flows of two independent projects:Year Project A Project B 0...
The following are the cash flows of two independent projects: Year Project A Project B 0 $ (250 ) $ (250 ) 1 130 150 2 130 150 3 130 150 4 130 a. If the opportunity cost of capital is 10%, calculate the NPV for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. Which of these projects is worth pursuing? Project A Project B Both Neither
Solutions
Expert Solution
| Ans 1 | |||||||
| Computation of NPV | |||||||
| Cash flow | Present value | ||||||
| Year | Project A | Project B | PVIF @ 10% | Project A | Project B | ||
| 0 | -250 | -250 | 1.0000 | $(250.00) | $(250.00) | ||
| 1 | 130 | 150 | 0.9091 | $ 118.18 | $ 136.36 | ||
| 2 | 130 | 150 | 0.8264 | $ 107.44 | $ 123.97 | ||
| 3 | 130 | 150 | 0.7513 | $ 97.67 | $ 112.70 | ||
| 4 | 130 | 0.6830 | $ 88.79 | $ - | |||
| NPV | $ 162.08 | $ 123.03 | |||||
| NPV A | $ 162.08 | ||||||
| NPV B | $ 123.03 | ||||||
| Ans 2 | Since both projects has positive NPV therefore, both should be accepted. | ||||||
| Ans = | Both |
jeff jeffy answered 2 years agoRelated Solutions
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170
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