Bee Ware Company is presented with the following two mutually exclusive projects

Question

Bee Ware Company is presented with the following two mutually exclusive projects. The required return for both projects is 17.5 percent. Project M: Year 0 is -$191,492 , Year 1 is $68,000 , Year 2 is $94,500 , Year 3 is $76,000 , Year 4 is $72,500 Project N: Year 0 is -$278,559 , Year 1 is $103,000 , Year 2 is $136,500 , Year 3 is $115,000 , Year 4 is $75,000 , The NPV for each project is: M: NPV = $ ____________ N: NPV = $ ____________ The NPV decision rule implies we accept project __________.

Explanation / Answer

for M : NPV = (-191492) + 68000/(1+0.175) + 94500/(1+0.175)^2 + 76000/(1+0.175)^3 + 72500/(1+0.175)^4 NPV = $ 19711.84 for N : NPV = (-278559) + 103000/(1+0.175) +136500/(1+0.175)^2 + 115000/(1+0.175)^3 + 75000/(1+0.175)^4 NPV = $ 18205.55 since, project M has higher NPV , it should be accepted

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