Question

We are trying to determine which project, A or B, could be sold for the most money today. Project A will generate cash flows of $400, $500, and $600 in the third, fourth, and sixth years, respectively, of the project's life. Project B will generate cash flows of $700 in year two and $800 in year nine. Investments similar to "A" return 10% on average while investments similar to "B" return 11%. Below, provide the answer for Project A. The following question will be for Project B.

Answer 1

Present Value of Cash flows from Project A @ 10% = 400 * (1+0.10)^(-3) + 500 * (1+0.10)^(-4) + 600 * (1+0.10)^(-6) = $980.72

Year	Cash flow	PV factor	Return	Present Value
3	400	0.751315	10%	300.53
4	500	0.683013	10%	341.51
6	600	0.564474	10%	338.68
				980.72

Present Value of Cash flows from Project B @ 11% = 700 * (1+0.11)^(-2) + 800 * (1+0.11)^(-9) = $880.88

Year	Cash flow	PV factor	Return	Present Value
2	700	0.811622	11%	568.14
9	800	0.390925	11%	312.74
				880.88

So, project A could be sold for more money today as it has higher Net Present Value.