Question

Question 5 5 pts 1 Use the following after-tax cash flows for project A and B to answer the following question: (Numbers in parentheses are negative cash flows). These two projects are independent. Year Cash Flow of A Cash Flow of B 0 ($2,400) ($4,500) $999 $800 $950 $950 3 ($150) $950 4 $910 $800 5 $990 $900 6 ($500) $1980 What is the approximate NPV of project A if the required rate of return is 10%? 2 $135 $910 $213 0 $799 0 $538

Answer 1

Ans:- Net Present Value = Present Value of cash flows - Initial Investment.

we will use the NPV function of excel to find the Present Value and then subtract with the initial investment to get the Net Present Value. Initial Investment is $2,400 and the required rate is 10%.

SUM Xfx =NPV(10%,D5:010)-2400 с D E А B 1 2 3 Years 4 5 6 Cash Flow of A 0 -2400 1 999) 21 950 3 - 150 4 910 5 990 6 -500 7 8 9 10 11 12 NPV 135 13 14 =NPV(10%,D5:010)-2400 15

Therefore, the NPV of project A is $135 (approx). Option A is the right answer.

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