Question

In: Finance

Here is project Y: The cash flow in year 0 is negative $23,000. The cash flow...

Here is project Y:

The cash flow in year 0 is negative $23,000.

The cash flow in year 1 is $32,000.

The cash flow in year 2 is $26,000.

The cash flow in year 3 is negative $12,000.

Here is project Z:

The cash flow in year 0 is negative $42,000.

The cash flow in year 1 is $58,000.

The cash flow in year 2 is $39,000.

The cash flow in year 3 is negative $35,000.

Your decision rule is to choose the project that has a higher net present value.

The discount rate is 15% for both projects.

Which project will you choose? What is the net present value of that project?

Solutions

Expert Solution

Solution :

The Net Present value of Project Y = $ 16,595.63

The Net Present value of Project Z = $ 14,911.32

As per the decision rule, the project that has a higher net present value shall be chosen.

Thus, Project Y, which has higher net present value shall be chosen.

The Net Present Value of the project Y is = $ 16,595.63

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

jeff jeffy answered 1 year ago
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