Question

You are considering the following two projects. Which project(s) should you choose?

Project	Year 0 Cash Flow	Year 1 Cash Flow	Year 2 Cash Flow	Year 3 Cash Flow	Year 4 Cash Flow	Discount Rate (r)
A	-$120	$40	$40	$40	$40	15%
B	-$90	$30	$30	$30	$30	15%

Answer 1

We will calculate NPV to select project.

We know that,

NPV = Present value of all the future cash flow - initial cost

Project A:

NPV = 40/(1+0.15)^1 + 40/(1+0.15)^2 + 40/(1+0.15)^3 + 40/(1+0.15)^4 - 120

NPV = -5.80 Answer

Project B:

NPV = 30/(1+0.15)^1 + 30/(1+0.15)^2 + 30/(1+0.15)^3 + 30/(1+0.15)^4 - 90

NPV = -4.35 Answer

Since both projects have negative NPV, I would suggest not to consider any project.

Since, we need to consider one project, you will select Project B as it has higher NPV.