Question

In: Finance

Calculate the net present value (NPV) for both projects usingthe crossover rate as your discount...

Use the following information to answer the next three questions. 

Consider the cash flows from two mutually exclusive projects: 


Cash Flow

YearProject AProject B
0-$420,000-$420,000
1$140,000$400,000
2$230,000$110,000
3$331,000$140,000


The appropriate discount rate is 8.5%.

Calculate the net present value (NPV) for both projects using the crossover rate as your discount rate. Round both NPVs to the nearest dollar.


Solutions

Expert Solution

NPV = Present Value of Cash Inflow - PV of Cash Outflow

Project A

Present Value of Cash Inflow =

=
= 583549.55

NPV = 583549.55 - 420,000 = 163549.55

Project B

Present Value of Cash Inflow =

=
= 571710.81

NPV = 571710.81 - 420,000 = 151710.81

jeff jeffy answered 2 years ago
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