Jim Harriman, the company\'s president, is unsure of which project to pursue. Ea

Question

Jim Harriman, the company's president, is unsure of which project to pursue. Each holds promise for the company, but he is confused about what to do because each project generates the same amount of cash flow over the four-year period from beginning to end of the project.

Required:

Ignoring taxes, compute the net present value of each project at a 15 percent cost of capital. For your calculations, use the time value of money formulas in Microsoft Excel. Use the time value of money charts for your calculations. Round intermediate calculations to two decimal places. Round your final answers placed below to a whole dollar.

Explanation / Answer

SINCE PROJECT X has highest NPV ,project X should be selected

year present value @ 15% Project X Y Z A cash flow (B) present value (A*B) cash flow (C) present value (A * C) cash flow (D) present value (A*D) 0 1 -1,000,000 -1,000,000 -1,000,000 -1,000,000 -1,000,000 -1,000,000 1 .86957 1,250,000 1086962.5 0 0 500000 434785 2 .75614 1,250,000 945175 0 0 2000000 1512280 3 .65752 1,250,000 821900 0 0 2000000 1315040 4 .57175 1,250,000 714687.5 5000000 2858750 500000 285875 NPV 2568725 1858750 2547980

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