Question

Project A has a required return on 9.2 percent and cash flows of −$87,000, $32,600, $35,900, and $43,400 for Years 0 to 3, respectively. Project B has a required return of 12.7 percent and cash flows of −$85,000, $14,700, $21,200, and $89,800 for Years 0 to 3, respectively. Which project(s) should you accept based on net present value if the projects are mutually exclusive?

Please show the calculations necessary to find NPV for each project.

Answer 1

NPV of Project-A
Year	Cashflows	PVF at 9.2%	Present Value
0	-87000	1	-87000
1	32600	0.915751	29853.48
2	35900	0.8386	30105.73
3	43400	0.767948	33328.96
NPV:			6288.17
NPV of Project-B
Year	Cashflows	PVF at 12.7%	Present Value
0	-85000	1	-85000
1	14700	0.887311	13043.48
2	21200	0.787322	16691.22
3	89800	0.698599	62734.23
NPV:			7468.93
Hence, Project B shall be accepted