Question

A company is considering three mutually exclusive projects with the below provided information. Which project the company should accept if its cost of capital is 10%?                                                                                                                                                

Preject	Project’s Life in years	Initial Investment	PV of Net Cash Flows at 10%
X	7	-17,000	23,000
Y	6	-16,000	21,000
Z	7	-16,000	21,000

Select one:

a. Project Z

b. Project X

c. Project Y

d. Projects X and Y

Answer 1

Compute the net present value of project X, using MS-excel as shown below:

The result of the above excel table is as follows:

Hence, the net present value of project X is $94,973.63.

Compute the net present value of project Z, using MS-excel as shown below:

The result of the above excel table is as follows:

Hence, the net present value of project Y is $75,460.47.

Compute the net present value of project Z, using MS-excel as shown below:

The result of the above excel table is as follows:

Hence, the net present value of project Z is $86,236.80.

The net present value of project X is highest, thus the project X should be selected.