Homework Answers
a.
b.
c.
It is beneficial to select Project X.
This is because, the project X has more NPV compared to project Y. In case of mutually exclusive projects, project giving more NPV is selected. This decision is based on the object of wealth maximisation of the investors. More NPV helps to maximize wealth, so project X is selected.
Note: calculations of present value annuity factor
Present value annuity factor = [1 - (1+r)-n ]/r.
Where,
r = rate of interest = 0.09 and n = number of years = 10
Therefore,
Present value annuity factor at 9% for 10 years =
= [1 - (1+0.09)-10 ]/0.09
= [1 - (1.09)-10 ]/0.09
= [1 - 1/(1.09)10 ]/0.09
= [1 - 1/2.3674]/0.09
= [1 - 0.4224]/0.09
= 0.5776/0.09
= 6.4177
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