Question

The following are the cash flows of two projects:

Year	Project A	Project B
0	−$260	−$260
1	140	160
2	140	160
3	140	160
4	140

a.	If the opportunity cost of capital is 11%, calculate NPV for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Project	NPV
A	$
B

b.	Which of these projects is worth pursuing if you have enough funds and they are not mutually exclusive?
	Project A Project B Both

Answer 1

SOLUTION : A
	CACLULATION OF THE PRESENT VALUE WITH COST OF CAPITAL @ 11% OF PROJECT A
	Years	Cash Outflow / Inflow	PVF of $ 1 @ 11%	Present Value (A XB)
	0	-260	1.0000	$                   -260
	1	140	0.9009	$                     126
	2	140	0.8116	$                     114
	3	140	0.7312	$                     102
	4	140	0.6587	$                       92
		Present Value		$                     174
	CACLULATION OF THE PRESENT VALUE WITH COST OF CAPITAL @ 11% OF PROJECT B
	Years	Cash Outflow / Inflow	PVF of $ 1 @ 11%	Present Value (A XB)
	0	-260	1.0000	$                   -260
	1	160	0.9009	$                     144
	2	160	0.8116	$                     130
	3	160	0.7312	$                     117
		Present Value		$                     131
		Project	NPV
		A	$                               174
		B	$                               131
SOLUTION : B
		Answer = Both, Becaue the both project have positive cash flow