Question

.140 Sparkle Co, has an opportunity to invest in two business initiatives: M1 and 22. Expected cash flow data for these two projects is shown below: Mi Z2 2019 -140 2020 2021 2022 2023 Sparkle has a WACC of 10%. Calculate the NPV of these projects. Project M1 NPV: Project Z2 NPV: Based on NPV, preferred is: If both projects can be undertaken, should they? If the projects are independent of each other, should they both be undertaken? If the projects are mutually exclusive of each other, should they both be undertaken?

Answer 1

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Statement showing computation:
1) Calculation of NPV:
Statement showing Cash flows			M1	Z2
Particulars	Time	PVf 10%	Amount	PV	Amount	PV
Cash Outflows	-	1.00	(140.00)	(140.00)	(140.00)	(140.00)
PV of Cash outflows = PVCO				(140.00)		(140.00)
Cash inflows	1.00	0.9091	60.00	54.55	75.00	68.18
Cash inflows	2.00	0.8264	60.00	49.59	75.00	61.98
Cash inflows	3.00	0.7513	60.00	45.08	75.00	56.35
Cash inflows	4.00	0.6830	60.00	40.98		-
PV of Cash Inflows =PVCI				190.19		186.51
NPV= PVCI - PVCO				50.19		46.51
NPV of M1 is $50.19
NPV of Z2 is 46.51
If both projects can be undertaken then both projects should be acceptd because NPV of both the project is greater than zero.
If both projects are independent of each other then both projects should be acceptd because NPV of both the project is greater than zero.
If both projects are mutually exclusive then project M1 should be accepted because its NPV is more than that of Project Z2.