Question

. The following is a list of four projects that Capital Corporation must choose from for the coming year: Project Project Price Annual Net Inflows A 700,000 118,861 B 670,000 109,039 C 184,000 32,549 D 273,000 48,305

(a) Given a uniform rate of interest of 9% and a uniform life of the projects of 10 years each, calculate the NPVs of each Project (To calculate NPV, calculate the Present Value of a 10 year annuity, and subtract the project price. You can use Excel to do this calculation - it is the easiest process. Open excel, go to formula button (fx), select category financial, select PV or present value, Rate is the rate of interest (9% or .09) NPER is the number of years (10) and Pmt is negative of the yearly Net Inflows (Its negative because excel assumes that Pmt means you are making payments, whereas in this problem you are receiving net revenues). Once you input that for each project excel will give you the Present Values for each project. Once you get the present values or PV subtract from each the Project Price to get the NPV.

(b) Should we choose Projects A, C, D or Projects A, B, D. Explain

Answer 1