For Project S find the present value of the cash inflows:
7,000/1.1075 + 12,000/1.1075 = 6320.54 + 9783.49 = 16104.03
Then subtract the initial cost: 16104.03 – 15,000 = 1104.03
So the NPV of Project S is 1,104.03
For Project L, find the present value of the cash flows:
Plug into financial calculator: Number of periods = 4, Interest rate = 10.75, Payment = -5200, Future value =0, end of period (ordinary annuity), and solve for present value and get: 16,219.21
Then subtract the initial cost: 16,219.21 – 15000 = 1,219.21
So the NPV of Project L is 1,219.21.
If they choose L, they will lose 115.18.
NPVL – NPVS = 1,219.21 – 1,104.03 = 115.18
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