Question
In: Finance
Mutually exclusive investments. The following are cash flows of two projects. Year Project A Project B 0...
Mutually exclusive investments.
The following are cash flows of two projects.
Year Project A Project B
0 $ (200) $ (200)
1 80 100
2 80 100
3 80 100
4 80
Calculate the NPV for both projects if the discount rate is 11%(Do not intermediate calculations.Round your answer to 2 decimal places)
Suppose that you can only choose one of the these projects. Which would you choose ?
project A
Project B
Neither
Solutions
Expert Solution
Project A
| Year | Cashflow | PVF@11% | Cashflow*PVF |
| 0 | (200) | 1 | (200.00) |
| 1 | 80 | 0.9009 | 72.07 |
| 2 | 80 | 0.8116 | 64.93 |
| 3 | 80 | 0.7312 | 58.50 |
| 4 | 80 | 0.6587 | 52.70 |
NPV = PV of inflows-PV of outflows
= (72.07+64.93+58.5+52.7)-200
= 248.2-200
= $48.20
Project B
| Year | Cashflow | PVF@11% | Cashflow*PVF |
| 0 | (200) | 1 | (200.00) |
| 1 | 100 | 0.9009 | 90.09 |
| 2 | 100 | 0.8116 | 81.16 |
| 3 | 100 | 0.7312 | 73.12 |
NPV = PV of inflows-PV of outflows
= (90.09+81.16+73.12)-200
= 244.37-200
= $44.37
Decision: Since both have positive NPV,both are acceptable. When the projects are mutually exclusive,Select one which has higher NPV, project A
jeff jeffy answered 4 months agoRelated Solutions
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