A firm has a piece of land that can be developed for two different projects. The...
A firm has a piece of land that can be developed for two different projects. The cash flows for the two projects are shown below:
| YEAR | 0 | 1 | 2 | 3 |
|---|---|---|---|---|
| Project A Cash | -$100 | $50 | $50 | $50 |
| Project B Cash | -$150 | $100 | $100 | $25 |
The cost of capital for the firm is 15%.
What is the NPV for project A?
Homework Answers
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=$50[1-(1.15)^-3]/0.15
=$50*2.283225117
=$114.16
NPV=Present value of inflows-Present value of outflows
=$114.16-$100
=$14.16(Approx).
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