The following are the cash flows of two projects: Year Project A Project B 0 ?$3

Question

The following are the cash flows of two projects: Year Project A Project B 0 ?$300 ?$300 1 180 200 2 180 200 3 180 200 4 180 -------------------------------------------------------------------------------- a. Calculate the NPV for both projects if the discount rate is 12%? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Project NPV A $ B -------------------------------------------------------------------------------- b. Suppose that you can choose only one of these projects. Which would you choose? Project A Project B

Explanation / Answer

NPV of project A = 300 + 180/1.12 + 180/1.12^2 + 180/1.12^3 + 180/1.12^4 = 846.72 and NPV of project B = 300 + 200/1.12 + 200/1.12^2 + 200/1.12^3 = 780.36 so we will choose project A

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