Question

​(Mutually exclusive projects and NPV​)

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	30,000		0
2	30,000		0
3	30,000		0
4	30,000		0
5	30,000		220,000
​(Click on the icon located on the​ top-right corner of the data table above in order to copy its contents into a spreadsheet.​)

If the appropriate discount rate on these projects is 11 ​percent, which would be chosen and​ why?

NEED ANSWERS ON THESE:

What is the NPV of project​ A? ____$ ​ (Round to the nearest​ cent.)

What is the NPV of project​ B? _____$ ​(Round to the nearest​ cent.)

Which project would be chosen and​ why?  ​(Select the best choice​ below.)

A. Choose A because its NPV is higher.

B. Choose both because they both have positive NPVs.

C. Choose B because its NPV is higher.

D. Cannot choose without comparing their IRRs.

Answer 1

Project A

Net present value can be solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$110,000. Indicate the initial cash flow by a negative sign since it is a cash outflow.  
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the discount rate of 11%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.  

Net present value at 11% discount rate is $876.91.

Project B

Net present value can be solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$110,000. Indicate the initial cash flow by a negative sign since it is a cash outflow.  
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the discount rate of 11%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.  

Net present value at 11% discount rate is $20,559.29.

Project B is chosen since it generates the largest net present value.