Question

Question 8 1 pts (8) Afirm with a cost of capital of 8% will make a decision about two mutually exclusive projects. Project X requires an initial investment of $35,000 today and is expected to generate $16,000 for the next 10 years. Project Y requires an initial investment of $45,000 and is expected to generate $14,200 for the next 10 years. The firm will choose which has an NPV of Project X: $53,300 Project Y: 572,361 Project Y: $50,283 Project X: $72,361 Project X: $75.979

Answer 1

Project Y Project X Years Cash flow Cash flow CF Present value factor Present value PVF = 1/(1+R)^n [PV *CF] R = 8% Present value factor Present value PVF = 1/(1+r)^n [PV *CF] R = 8% -35,000 16,000 16,000 16,000 16,000 16,000 16,000 16,000 16,000 16,000 16,000 1.0000 0.9259 0.8573 0.7938 0.7350 0.6806 0.6302 0.5835 0.5403 0.5002 0.4632 -35,000.00 14,814.81 13,717.42 12,701.32 11,760.48 10,889.33 10,082.71 9,335.85 8,644.30 8,003.98 7,411.10 -45,000 14,200 14,200 14,200 14,200 14,200 14,200 14,200 14,200 14,200 14,200 1.0000 0.9259 0.8573 0.7938 0.7350 0.6806 0.6302 0.5835 0.5403 0.5002 0.4632 -45,000.00 13,148.15 12,174.21 11,272.42 10,437.42 9,664.28 8,948.41 8,285.56 7,671.82 7,103.54 6,577.35 Net Present value 72,361.30 Net Present value 50,283.16 Since, it is mutually exclusive, one project has to be selected The firm will choose Project X, which has an NPV of $72,361.30