Consider the following cash flows for projects A and B. Year Project A Project B

Question

Consider the following cash flows for projects A and B.

Year                                                    Project A         Project B

0                                                          -$1000             -$1000

1                                                          375                 900

2                                                          375                 700

3                                                          375                 500

4                                                          375                 -200

5                                                          -100                 200

The cost of capital for both projects is 10%.

What is the NPV of projects A and B, respectively?

$126.61 (A), $759.93(B)

$136.61 (A), $719.93(B)

$709.93 (A), $126.61 (B)

$159.93(A), 726.61 (B)

1.

$126.61 (A), $759.93(B)

2.

$136.61 (A), $719.93(B)

3.

$709.93 (A), $126.61 (B)

4.

$159.93(A), 726.61 (B)

Explanation / Answer

The correct opotion will be Option 1

Calculation of NPV of Projects A and B:

Present value Year Project A Project B Pv @ 10% Project A Project B 0 -1000 -1000 1 -1000.00 -1000 1 375 900 0.9091 340.91 818.19 2 375 700 0.8264 309.90 578.48 3 375 500 0.7513 281.74 375.65 4 375 -200 0.683 256.13 -136.6 5 -100 200 0.621 -62.10 124.2 126.58 759.92

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