Question

Could someone help me solve this for business finance? We weren't given solutions so I can't check my work. Please provide work as well!

1. Darlene analyzed two projects; Project Daly is expected to generate cash flows of $3,000 for 5 years. Project Charlie is expected to generate cash flows of $2,500 for 6 years. With an initial investment of $11,000 and required return of 10%, which project will be selected using NPV analysis?
   1. Daly over Charlie
   2. Darlene is indifferent between the two since they have the same NPV
   3. Neither, since they both have negative NPV
   4. Charlie over Daly
   5. None of the above

Answer 1

A) Daly over Charlie

explanation:

Year	Cash flow of Daly (CF)	Cash flow of Charlie (CF)	PV factor	PV of Daly cashflow (Cf × PV factor)	PV of Charlie cashflow (CF × Pv factor)
1	3,000	2,500	0.9091	2,727.30	2,272.75
2	3,000	2,500	0.8264	2,479.20	2,066
3	3,000	2,500	0.7513	2,253.90	1,878.25
4	3,000	2,500	0.6830	2,049	1,707.50
5	3,000	2,500	0.6209	1,862.70	1,552.25
6		2,500	0.5645		1,411.25
Total PV of cash flow				11,372.10	10,888

Npv of Daly = PV of cash flow - initial investment

=11,372.10 - 11,000

= 372.10

Npv of Charlie = Pv of cash flow - initial investment

= 10,888 - 11,000

= -112