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Project A requires an immediate investment of $8000 and another $6000 in three years. Net returns...

Project A requires an immediate investment of $8000 and another $6000 in three years. Net returns are $4000 after two years, $12,000 after four years, and $8000 after six years. Project B requires an immediate investment of $4000, another $6000 after two years, and $4000 after four years. Net returns are $3400 per year for seven years. Determine the net present value at 10%. Which project is preferable according to the net present value criterion?

ANS:

PROJECT A NPV= $3510

PROJECT B NPV= $4862

PROJECT B IS PREFERRABLE

*note: asking how to get to these solutions through a TI BA II PLUS financial calc. Thank you!

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Answer #1

Net present value = Present value of cash inflow - Present value of cash outflow

Project A = (4000*0.8264 + 12000*0.6830 + 8000*0.5645) - (8000 + 6000*0.7513)

= $3510

Project B = (3400*4.8684) - (4000 + 6000*.8264 + 4000*0.6830)

= $4862

Project B is Preferable.

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