Please help with all of the following questions Federer Inc. is comparing two mu

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Please help with all of the following questions

Federer Inc. is comparing two mutually exclusive projects: Project A and Project B. Project A requires an initial investment of $9,500 and wi11 generate after-tax cash flows of $6,000 at the end of each of the next two years. Project B requires an initial investment of $23,500 and will generate after-tax cash flows of $8,000 at the end of each of he next four year. If Fiderer's WACC is 9.6% and these projects have average risk, what is each project's NPV? Suppose the selected project can be repeated at no additional cost as many times as Federer would like to repeat It. Federer will need to keep repeating whichever project it chooses indefinitely. Which project should Federer accept? Project B Project A

Explanation / Answer

NPV of A = -9500 + 6000/1.096 + 6000/1.096^2 = 969.3910 NPV of B = -23500 + 8000/1.096 + ... + 8000/1.096^4 = 2080.068 repeat project A once, so that A also has 4 years horizon, and cash flows of A would be -9500, 6000, -3500, 6000, 6000. NPV of new A = 1776.399 which is smaller than 2080 So choose B.

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