Question

Net present

value.

Quark Industries has three potential​ projects, all with an initial cost of

​$1 comma 900 comma 0001,900,000.

The capital budget for the year will allow Quark to accept only one of the three projects. Given the discount rate and the future cash flow of each​ project, determine which project Quark should accept.

Cash Flow	Project M		Project N		Project O
Year 1	​ $500 comma 000500,000		​$600 comma 000600,000		​$1 comma 000 comma 0001,000,000
Year 2	​$500 comma 000500,000		​$600 comma 000600,000		​$800 comma 000800,000
Year 3	​$500 comma 000500,000		​$600 comma 000600,000		​$600 comma 000600,000
Year 4	​$500 comma 000500,000		​$600 comma 000600,000		​$400 comma 000400,000
Year 5	​$500 comma 000500,000		​$600 comma 000600,000		​$200 comma 000200,000
Discount rate	88​%		1111​%		1616​%

Which project should Quark​ accept?  ​(Select the best​ response.)

A.

Project Upper NProject N

B.

Project Upper OProject O

C.

Project Upper MProject M

D.

None of the projects

Answer 1

NPV Decision Rule:

Projects are Independent: Select Project only if the NPV of projects are positive

Projects are Mutually Exclusive: Select Project which gives highest NPV

Thus Option A Project N which gives highest NPV

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