The following are the cash flows of two projects: Year Project A Project B 0 $26

Question

The following are the cash flows of two projects: Year Project A Project B 0 $260        $260        1 140        160        2 140        160        3 140        160        4 140        a. Calculate the NPV for both projects if the discount rate is 11%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Project NPV         A $    B    b. Suppose that you can choose only one of these projects. Which would you choose? Project A Project B Neither The following are the cash flows of two projects:

Explanation / Answer

a.Computation of Net present value

Year Project A discount@11% Present value of Project B discount@11% Present value of

cash inflows cash inflows

  1 140 0.9009 126.13 160 0.9009 144.14

2 140 0.8116 113.62 160 0.8116 129.86

3 140 0.7312 102.37 160 0.7312 116.99

4 140 0.6587 92.22 - - -

Present value of cash inflows 434.34 390.99

less: initial investment (260) (260)

Net present value 174.34 130.99

b. Project A has highest NPV is 174.34.

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