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Zellers, Inc. is considering two mutally exclusive projects, A and B. Project A costs $75,000 and is expected to generate $48,000 in year one and $45,000 in year two. Project B costs $80,000 and is expected to generate $34,000 in year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four. Zellars, Inc.'s required rate of return for these projects is 10%. The net present value for Project B is:

A. $18,097

B. $42,000

C. $34,238

D. $21,378

Explanation / Answer

Net present value = present value of cashoutflows - present value of cash in flows.

Therfore answer is option A.

Year (Costs)/revenues Discount factor Presnt value 0 -$80,000.00 1 -$80,000.00 1 $34,000.00 0.909090909 $30,909.09 2 $37,000.00 0.826446281 $30,578.51 3 $26,000.00 0.751314801 $19,534.18 4 $25,000.00 0.683013455 $17,075.34 Total $18,097.12

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