computer plz The concept of present value is used to evaluate and make the investment decisions...

computer plz

The concept of present value is used to evaluate and make the investment decisions by investors. This criteria of discount rate and present value is used to make decision to select appropriate investment projects. If you have 2 investment projects with the same costs as the following:

First: For the first project total revenue at the end of every year is $1575 and the interest rate is 7.5%. Second: For second project, total revenue at the end of every year is $1750 and the interest rate is 15%.

Evaluate these two investment projects through 2 years period and decide which project is better to select.

Solutions

Expert Solution

The project with a higher total discounted revenue will have a higher NPV and hence is more preferable than the other.

The NPV is given in the following images in excel (both with values and formulas)

So we find that the NPV of project 2 is $2845 whereas NPV of project 1 is $2828.

So NPV of project 2 is higher than NPV of project 1.

Hence based on NPV criteria project 2 is better to choose.

Rahul Sunny answered 7 months ago

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