Question

) The cash flows for four projects are shown below, along with the cost of capital for these projects. If these projects are mutually exclusive, which one should be taken? 28) A) Year: 0 1 2 3 4 5 Cash flow: -$20,000 $6000 $6000 $6000 $6000 $6000 Cost of Capital: 8.2% B) Year: 0 1 2 3 4 5 Cash flow: -$15,000 $4000 $4000 $4000 $4000 $4000 Cost of Capital: 7.0% C) Year: 0 1 2 3 4 5 Cash flow: -$18,000 $5000 $5000 $5000 $5000 $5000 Cost of Capital: 7.6% D) Year: 0 1 2 3 4 5 Cash flow: -$12,000 $4000 $4000 $4000 $4000 $4000 Cost of Capital: 5.0%

Answer 1

A.Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$20,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the cost of capital of 8.2%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 8.2% cost of capital is $3,830.51.

B.Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$15,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the cost of capital of 7.0%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 7.0% cost of capital is $1,400.79.

C.Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$18,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the cost of capital of 7.6%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 7.6% cost of capital is $2,175.80.

D.Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$12,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the cost of capital of 5.0%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 5.0% cost of capital is $5,317.91.

Project D should be selected since it has the highest net present value.

In case of any query, kindly comment on the solution.