Question

If Wise Guy Inc is choosing one of the above mutually exclusive projects (Project A or Project B), given a discount rate of 7%, which should the company choose? 

Answer 1

Project A
Discount rate	0.07
Year	0	1	2	3
Cash flow stream	-10000	5000	4000	3000
Discounting factor	1	1.07	1.1449	1.225043
Discounted cash flows project	-10000	4672.897	3493.755	2448.894
NPV = Sum of discounted cash flows
NPV Project A =	615.55
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
Project B
Discount rate	0.07
Year	0	1	2	3
Cash flow stream	-10000	4000	3000	10000
Discounting factor	1	1.07	1.1449	1.225043
Discounted cash flows project	-10000	3738.318	2620.316	8162.979
NPV = Sum of discounted cash flows
NPV Project B =	4521.61
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

Project B as NPV is higher and positive

Answer 2

Both the projects have positive NPV, so, both the projects to be selected

So, option 'D' is correct

Both Projects - Both have positive NPV