Question

⦁   The net cash flows associated with two projects are as follows:
Year   0 1 2 3 4 5 6
A   (90,000)   0 30,000   40,000   45,000   50,000   50,000
B   (60,000)   24,000   23,000   20,000   18,000   15,000   12,000
The required rate of return for both projects is 9.00%.
⦁   If the projects are independent, which projects would be accepted?
⦁   If the projects are mutually exclusive and have no replacement, which project is preferred?
⦁   If the projects are mutually exclusive and have replacement, which is project preferred?

Answer 1

Year	Project A	PVF @ 9 %	PV CF Proj A	Project B	PV CF Proj B
0	(90,000)	1	(90,000)	(60,000)	(60,000)
1	-	0.9174	-	24,000	22,018
2	30,000	0.8417	25,250	23,000	19,359
3	40,000	0.7722	30,887	20,000	15,444
4	45,000	0.7084	31,879	18,000	12,752
5	50,000	0.6499	32,497	15,000	9,749
6	50,000	0.5963	29,813	12,000	7,155
	NPV		60,327		26,476

If the projects are independent all the projects with +Ve NPV can be selected

In case of Mutally exlusive projects we have select only one out the available oppurtunities. The projects with higher NPV should be preferred. if there is noreplacement involved then Project A shold be accepted

Here repleacement cost and benefits out of the replacement are not given hence the same cannot be commented.