Correct answers and spelling for thumbs up!
Let cash flows in Year n be denoted by CFn
NPV = ΣCFn/(1+r)n
WACC = r = 11%
For Project A, NPV = -CF0 + CF1/(1+r) + CF2/(1+r)2 +
CF3/(1+r)3 + CF4/(1+r)4
= -9000 + 2000/(1+0.11) + 5000/(1+0.11)2 +
1000/(1+0.11)3 + 4000/(1+0.11)4
= $226.02
For Project B, NPV = -CF0 + CF1/(1+r) + CF2/(1+r)2 +
CF3/(1+r)3 + CF4/(1+r)4
= -12000 + 5000/(1+0.11) + 4000/(1+0.11)2 +
6000/(1+0.11)3 + 2000/(1+0.11)4
= $1455.60
For Project C, NPV = -CF0 + CF1/(1+r) + CF2/(1+r)2 +
CF3/(1+r)3 + CF4/(1+r)4
= -18200 + 0/(1+0.11) + 5000/(1+0.11)2 +
10000/(1+0.11)3 + 12000/(1+0.11)4
= $1074.80
Ranking in Terms on NPV --> Project B > Project C > Project A
Since the firm has $25000, it can select A or B or C individually or A and B together
NPV of A = $226.02
NPV of B = $1455.60
NPV of C = $1075.80
NPV of A and B = 226.02 + 1455.60 = $1681.62
Hence, the firm should select A and B
Correct answers and spelling for thumbs up! For each of the following projects determine the NPV...
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