Question

1. Calculate the net present value (NPV) for both projects, anddetermine which project should be...

Use the following information to answer the next three questions. 

Consider the cash flows from two mutually exclusive projects: 

YearProject AProject B
0-$420,000-$420,000
1$140,000$400,000
2$230,000$110,000
3$331,000$140,000

The appropriate discount rate is 8.5%.

1. Calculate the net present value (NPV) for both projects, and determine which project should be accepted based on NPV. Round both NPVs to the nearest dollar.

2. Calculate the internal rate of return (IRR) for both projects, and determine which project should be accepted based on IRR.

3. Calculate the net present value (NPV) for both projects using the crossover rate as your discount rate. Round both NPVs to the nearest dollar.



3 0
Add a comment Improve this question Transcribed image text
✔ Recommended Answer
Answer #1

1. NPV of project A

=[-420,000+(140000/1.085)+(230000/(1.085)^2+331000/(1.085)^3]

= [-420,000+129032+195375+259142]

=163550

2. NPV of project B

=[-420,000+(400000/1.085)+110,000/(1.085)^2+140,000/(1.085)^3

= (-420000+368663+93440+109607)

= 151710

Project A should be accepted as it has higher net present value

Add a comment
Know the answer?
Add Answer to:
1. Calculate the net present value (NPV) for both projects, anddetermine which project should be...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Similar Homework Help Questions
ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT