Given the following cash flows for two mutually exclusive projects. Proj. 0 1 2 3 4 A -$100m 20m 30m 40m 90m B -$...
Given the following cash flows for two mutually exclusive projects.
| Proj. | 0 | 1 | 2 | 3 | 4 |
| A | -$100m | 20m | 30m | 40m | 90m |
| B | -$100m | 80m | 40m | 30m | 10m |
Which project will be accepted if the firm's cost of capital is 15%?
- A.
A
- B.
B
- C.
Neither
- D.
Both
Homework Answers
rate positively ..
| Proj. | 0 | 1 | 2 | 3 | 4 | Total | ||
| i | A | ($100) | 20 | 30 | 40 | 90 | ||
| ii | B | ($100) | 80 | 40 | 30 | 10 | ||
| iii | PVIF @ 15% | 1 | 0.86957 | 0.75614 | 0.65752 | 0.57175 | ||
| iv=i*iii | Present value A | (100.00) | 17.39 | 22.68 | 26.30 | 51.46 | 17.83 | |
| v=ii*iii | Present value B | (100.00) | 69.57 | 30.25 | 19.73 | 5.72 | 25.25 | |
| NPV A = | 17.83 | mil | ||||||
| NPV B = | 25.25 | mil | ||||||
| we can see that NPV of A and B both are positive and projects are mutually exclusive. | ||||||||
| Therefore both project should be accepted. | ||||||||
| correct answer is option : | D) Both | |||||||
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