You are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyse two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each project is 12 percent. The projects expected net cash flows are as follows:


Calculate each project’s net present value (NPV)
X:
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=6500/1.12+3000/1.12^2+3000/1.12^3+1000/1.12^4
=10966.01
NPV=Present value of inflowsPresent value of outflows
=10966.0110,000
=$966.01(Approx)
Y:
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=3500/1.12+3500/1.12^2+3500/1.12^3+3500/1.12^4
=10630.72
NPV=Present value of inflowsPresent value of outflows
=10630.7210,000
=$630.72(Approx).
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