Question

You have been assigned the task of evaluating two mutually exclusive projects with the following projected cash​ flows:

Year	Project A Cash Flow	Project B Cash Flow
0	​$(110,000​)	​$(110,000​)
1	40,000	0
2	40,000	0
3	40,000	0
4	40,000	0
5	40,000	240,000

If the appropriate discount rate on these projects is 8 ​percent, which would be chosen and​ why?

The NPV of Project A is ​$_____.

The NPV of Project A is ​$_____.

Which would be chosen and​ why?

Answer 1

Select Project B, because that has higher NPV. Higher NPV implies that project B would add higher value to firm, if implemented.