Question

e 210: Chapters: 8-11 Seved The following are the cash flows of two independent projects: Year Project A $(330) 160 160 160 160 Project B $ (330) 230 230 a:If the opportunity cost of capital is 12%, calculate the NPV for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places.) NPV Project Project A Project B b. Which of these projects is worth pursuing? Project A Project B Both Neither

Answer 1

e 210: Chapters: 8-11 Seved The following are the cash flows of two independent projects: Year Project A $(330) 160 160 160 160 Project B $ (330) 230 230 a:If the opportunity cost of capital is 12%, calculate the NPV for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places.) NPV Project Project A Project B b. Which of these projects is worth pursuing? Project A Project B Both Neither

NPV = Present Value of Cash Inflow - Present Value of Cash Outflow

NPV of Project A =

Cash Flown Cash Flowi Cash Flow2 (1+r)2 -330 (1 + r)

=

160 160 160 160 (1+0.12)*(1+0.12) 2 *(1+0.12) (1+0.12)

= 485.98 - 330 = 155.98

NPV of Project B =

Cash Flown Cash Flowi Cash Flow2 (1+r)2 -330 (1 + r)

=

230 3030 (1+0.12)*(1+0.12)2(1+0.12) "

= 552.42 - 330 = 222.42

Prroject B should be selected. If the projects are not mutually exclusive both of the projects can be accepted.

Accept Both.

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