Question

On the following projects, calculate the difference VPN (A) - VPN (B): YEAR PROJECT A PROJECT B 0 - ($ 50,000) - ($ 50,000) 1 25,625 0 2 15,625 0 3 15,625 0 4 5,625 +75,500

AÑO	PROYECTO A	PROYECTO B
0	-($50,000)	-($50,000)
1	25,625	0
2	15,625	0
3	15,625	0
4	5,625	+75,500

Note: Discount rate = 10%; Given flows are net flows after taxes.

Answer 1

	Computation of NPV
	Project A					Project B
	Year	Cashflows	PVF at 10%	PV		Year	Cashflows	PVF at 10%	PV
A	0	$        (50,000)	1.0000	$        (50,000)		0	$   (50,000)	1.0000	$         (50,000)
		PV of Cash Outflows		$        (50,000)			PV of Cash Outflows		$         (50,000)
B	1	$          25,625	0.9091	$    23,295.45		1	$               -	0.9091	$                    -
	2	$          15,625	0.8264	$    12,913.22		2	$               -	0.8264	$                    -
	3	$          15,625	0.7513	$    11,739.29		3	$               -	0.7513	$                    -
	4	$             5,625	0.6830	$       3,841.95		4	$     75,500	0.6830	$     51,567.52
		PV of Cash Inflows		$    51,789.92			PV of Cash Inflows		$     51,567.52
C	NPV	= B-A		$       1,789.92		NPV	= B-A		$       1,567.52

VPN(A) - VPN(B) = $ 1,789.92 - $ 1,567.52 = $ 222.41