AC Slater and Zach Morris are partners in a firm. They are trying to decide on a
ID: 2724011 • Letter: A
Question
AC Slater and Zach Morris are partners in a firm. They are trying to decide on a new project to take on, but they can only afford one project. They both have favorites as listed in the table below. Assuming a 10% discount rate, which project should they choose?
Choose option below:
A) Zach’s because it has the highest NPV
B) AC’s because it has the highest NPV
C) Zach’s because the initial investment is lower
D) Neither, both NPV’s are too low.
Explanation / Answer
Project AC
year
Cash Flow
PV Factor@ 10%
PV
0
(400)
1.0000
(400.00)
1
200
0.9091
181.82
2
200
0.8264
165.29
3
200
0.7513
150.26
4
-
0.6830
-
NPV
97.37
Project Zach
year
Cash Flow
PV Factor@ 10%
PV
0
(500)
1.0000
(500.00)
1
175
0.9091
159.09
2
175
0.8264
144.63
3
175
0.7513
131.48
4
175
0.6830
119.53
NPV
54.73
They should choose Zach’s project.
Answer: A) Zach’s because it has the highest NPV.
Project AC
year
Cash Flow
PV Factor@ 10%
PV
0
(400)
1.0000
(400.00)
1
200
0.9091
181.82
2
200
0.8264
165.29
3
200
0.7513
150.26
4
-
0.6830
-
NPV
97.37
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