Question

The following are the cash flows of two projects:

Year	Project A	Project B
0	$(340)	$(340)
1	170	240
2	170	240
3	170	240
4	170

A.) Calculate the NPV for both projects if the opportunity costs of capital is 15%. *(2 decimal places, do not round intermediate calculations)

B.) Suppose you can choose one one of these projects, which would you choose?

Answer 1

A)			Project A			Project B
	NPV		$ 145.35			$ 207.97
Working:
			Project A			Project B
Year	Present value of 1		Cash flows	Present value		Cash flows	Present value
a	b=1.15^-a		c	d=b*c		e	f=b*e
0	1.0000		-340	$   -340.00		-340	$   -340.00
1	0.8696		170	$    147.83		240	$    208.70
2	0.7561		170	$    128.54		240	$    181.47
3	0.6575		170	$    111.78		240	$    157.80
4	0.5718		170	$       97.20
	Net Present Value			$    145.35			$    207.97
B)
	Project B
	Since Project B has higher NPV(Net Present Value).It is better to choose Project B.