Question

You have been assigned the task of evaluating two mutually exclusive projects with the following projected cash​ flows:

YEAR      PROJECT A CASH FLOW                 PROJECT B CASH FLOW

   0          -110,000                                               -110,000

   1          30,000                                                   0

   2          30,000                                                   0

   3          30,000                                                   0

   4          30,000                                                   0

   5          30,000                                                   210,000

If the appropriate discount rate on these projects is 9 ​percent, which would be chosen and​ why?

What is the NPV of project​ A?

​$nothing

​ (Round to the nearest​ cent.)

What is the NPV of project​ B?

​$nothing  

​(Round to the nearest​ cent.)

Which project would be chosen and​ why?  ​(Select the best choice​ below.)

A.

Choose Upper B because its NPV is higher.Choose B because its NPV is higher.

B.

Choose both because they both have positive NPVs.

C.

Choose Upper A because its NPV is higher.Choose A because its NPV is higher.

D.

Cannot choose without comparing their IRRs.

Answer 1

Ans B.Choose both because they both have positive NPVs.

NPV of Project A: $ 6689.54

Year	Project Cash Flows (i)		DF@ 9% (ii)	PV of Project A ( (i) * (ii) )
0	-110000		1	(1,10,000.00)
1	30000		0.917	27,522.94
2	30000		0.842	25,250.40
3	30000		0.772	23,165.50
4	30000		0.708	21,252.76
5	30000		0.650	19,497.94
		NPV		6,689.54

NPV of Project B: $ 26485.59

Year	Project Cash Flows (i)		DF@ 9% (ii)	PV of Project B ( (i) * (ii) )
0	-110000		1	(1,10,000.00)
1	0		0.917	-
2	0		0.842	-
3	0		0.772	-
4	0		0.708	-
5	210000		0.650	1,36,485.59
		NPV		26,485.59