An auto manufacturing company is preparing a capital budget and considering four long-term investments. The net...
An auto manufacturing company is preparing a capital budget and considering four long-term investments. The net present value of each project is as follows:
- Project A: 0.25
- Project B: 0
- Project C: -0.5
- Project D: 1.5
In theory, which two projects should the company pursue?
Homework Answers
Net Present Value (NPV) is the difference between Present value of cash inflows and present value of cash outflows. a project is recommended to pursue when the NPV is positive and a project should be rejected when the NPV is negative.
in the given project details Project C should be rejected as it has negative NPV.
Project B is not recommended as we have to pursue only two projects which offers higher NPV.
Thus Project A and Project D should be pursued.
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