Question

Here are the cash-flow forecasts for two mutually exclusive projects:

	Cash Flows (dollars)
Year	Project A				Project B
0	−	107			−	107
1		37				56
2		57				56
3		77				56

a-1. What is the NPV of each project if the opportunity cost of capital is 3%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

a-2. Which project would you choose?

• Project A

• Project B

b-1. What is the NPV of each project if the opportunity cost of capital is 12%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b-2. Which would you choose?

• Project A

• Project B

Answer 1

a-1. Net present value of each project at cost of capital 3 %

a-2. The NPV of the project A is more than project B , Therefore project A is to be chosen at cost of capital 3%.

b-1. Net present value of each project at cost of capital 12 %

b-2. The NPV of the project B is more than project A , Therefore project B is to be chosen at cost of capital 12%.