Question

Using the NPV rule, which of the following projects should a firm undertake if it can invest $25000.

Year   Project A   Project B   Project C
0 -9000 -1200 -18200
1 2000    5000 0
2    5000 4000 5000
3 1000 6000 10000
4 4000 2000 12000
Group of answer choices
A. A

B. C

C. B

D. A and B

Answer 1

NPV = PV of Cash Inflows - PV of Cash Outflows

Assuming DIsc Rate is 10%

		Project A		Project B		Project C
Year	PVF @10%	CF	Disc CF	CF	Disc CF	CF	Disc CF
0	1	$ -9,000.00	$ -9,000.00	$ -1,200.00	$ -1,200.00	$ -18,200.00	$ -18,200.00
1	0.909091	$ 1,200.00	$ 1,090.91	$ 5,000.00	$   4,545.45	$                 -	$                 -
2	0.826446	$ 5,000.00	$ 4,132.23	$ 4,000.00	$   3,305.79	$    5,000.00	$    4,132.23
3	0.751315	$ 1,000.00	$     751.31	$ 6,000.00	$   4,507.89	$ 10,000.00	$    7,513.15
4	0.683013	$ 4,000.00	$ 2,732.05	$ 2,000.00	$   1,366.03	$ 12,000.00	$    8,196.16
NPV			$    -293.49		$12,525.16		$    1,641.54
Rank			3		1		2

Thus Invest in Project B & C

1200 + 18200

= 19400 is invested.