Question

Sparkle Co. has an opportunity to invest in two business initiatives: M1 and Z2 Expected cash flow data for these two projects is shown below: M1 Z2 ACF 2019 140 140 2020 2021 2022 2023 75 75 75 60 60 60 60 15 15 15 Sparkle has a WACC of 10%. Calculate the NPV of these projects $50.19 Project M1 NPV: $46.51 Project Z2 NPV: Based on NPV, preferred is: Project M1

If both projects can be undertaken, should they? Why?

If the projects are independent of each other, should they both be undertaken? why?

If the projects are mutually exclusive of each other, should they both be undertaken? Why?

Answer 1

Hello Sir/ Mam

Cashflow Analysis:

PROJECT M1
Year	Cashflows	PVF	PV
2019	-$140.00	1.000000	-$140.00
2020	$60.00	0.909091	$54.55
2021	$60.00	0.826446	$49.59
2022	$60.00	0.751315	$45.08
2023	$60.00	0.683013	$40.98
NPV			$50.19

PROJECT Z2
Year	Cashflows	PVF	PV
2019	-$140.00	1.000000	-$140.00
2020	$75.00	0.909091	$68.18
2021	$75.00	0.826446	$61.98
2022	$75.00	0.751315	$56.35
NPV			$46.51

• Based on NPV, preferreed project is PROJECT M1
• If both projects can be undertaken, should they? Why?
  Yes, both should be undertaken because both projects have positive NPV.
• If the projects are independent of each other, should they both be undertaken? why?
  Both should be undertaken, as both have positive NPV and both can be taken simultaneously.
• If the projects are mutually exclusive of each other, should they both be undertaken? Why?
  PROJECT M1 should be undertaken if only one of these should be undertaken.

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