Question

Here are the cash-flow forecasts for two mutually exclusive projects: Cash Flows (dollars) Year Project A Project B 0 ? 120 ? 120 1 50 69 2 70 69 3 90 69 a-1. What is the NPV of each project if the opportunity cost of capital is 2%? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b-1. What is the NPV of each project if the opportunity cost of capital is 14%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

a) When opportunity cost of capital is 2%
Calculation of net present value of Project A;
Year	Cashflow(in$)(a)	PVF@2%(b)	Present value(a*b)
0	-120	1.000	-120.00
1	50	0.980	49.02
2	70	0.961	67.28
3	90	0.942	84.81
Net Present value(in $)			81.11
NPV is $81.11
Calculation of net present value of Project B;
Year	Cashflow(in$)(a)	PVF@2%(b)	Present value(a*b)
0	-120	1.000	-120.00
1	69	0.980	67.65
2	69	0.961	66.32
3	69	0.942	65.02
Net Present value(in $)			78.99
NPV is $78.99
b) When opportunity cost of capital is 14%
Calculation of net present value of Project A;
Year	Cashflow(in$)(a)	PVF@14%(b)	Present value(a*b)
0	-120	1.000	-120.00
1	50	0.877	43.86
2	70	0.769	53.86
3	90	0.675	60.75
Net Present value(in $)			38.47
NPV is $38.47
Calculation of net present value of Project B;
Year	Cashflow(in$)(a)	PVF@14%(b)	Present value(a*b)
0	-120	1.000	-120.00
1	69	0.877	60.53
2	69	0.769	53.09
3	69	0.675	46.57
Net Present value(in $)			40.19
NPV is $40.19