You are asked to evaluate the following two projects for the Norton corporation. Use a discount...

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You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 12 percent. Use Appen Appendix Present value of $1. Pris PV=Fv1 Period 3% 0.971 0.943 0.915 0.888 0.863 0.837 4% 0.962 0.925 0.889 0.855 0.822 0.79

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Answer 1

Answer #1

Ans:

Project X
Discount rate	0.12
Year	0	1	2	3	4
Cash flow stream	-36000	18000	16000	17000	16600
Discounting factor	1	0.893	0.797	0.712	0.636
Discounted cash flows project	-36000	16074	12752	12104	10557.6
NPV = Sum of discounted cash flows
NPV Project X =	15487.6
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

PI= 1+ Present value of cash inflow/Initial investment
= 1+ (15487.60/36000)
1.43

b

Project Y
Discount rate	0.12
Year	0	1	2	3	4
Cash flow stream	-56000	28000	21000	22000	24000
Discounting factor	1	0.893	0.797	0.712	0.636
Discounted cash flows project	-56000	25004	16737	15664	15264
NPV = Sum of discounted cash flows
NPV Project Y =	16669
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cash flow=	Cash flow stream/discounting factor

PI= 1+ Present value of cash inflow/Initial investment
= 1+ (16669/56000)
1.3


c

Choose Project X as it has higher PI

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Answer 2

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