Consider two projects: Project A currently costs $16 million, which is to be pai

Question

Consider two projects: Project A currently costs $16 million, which is to be paid this year. The returns are $13 million in one year and $12 million in two years. Project B currently costs $15 million, again to be paid this year. The returns are $12 million in one year and $10 million in two years.

At an interest rate of 6%, the net present value of Project A is roughly____ , while the net present value of Project B is roughly___ .

Suppose investing in one project eliminates the opportunity to invest in the other. If the interest rate is 6%, Project ___ is preferable.

Explanation / Answer

the net present value of Project A is roughly

=-16+13/1.06^1+12/1.06^2

=6.94 million

the net present value of project B is roughly

=-15+12/1.06^1+10/1.06^2=5.22 million

project A is preferable as it has high NPV than B

the above are answers

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.