Homework Answers
| Ans.1a | Project A | |||
| Present value of cash inflows | 265856 | |||
| Less: Investment | -265000 | |||
| Net present value | 856 | |||
| Present value of cash inflow = Annual cash inflow * Present value of an annuity of 1 | ||||
| 62000 * 4.288 | ||||
| 265856 | ||||
| Ans.1 b | Project A | |||
| Present value of cash inflows | 401150 | |||
| Less: Investment | -380000 | |||
| Net present value | 21150 | |||
| Present value of cash inflow = Annual cash inflow * Present value of an annuity of 1 | ||||
| 71000 * 5.650 | ||||
| 401150 | ||||
| Ans.2 | Maximum acceptable price = Present value of cash inflow | |||
| Project A | 265856 | |||
| Project B | 401150 | |||
*Both projects should be accepted as the NPV of each project is positive.
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