Question

your division is considering two projects with the following net cash flows ( in Millions ) 0 1 2 3 ProA -30 10 15 22 ProB -25 15 14 11 what are the projects NPVs assuming the WACC is 5%

Answer 1

The given data can be arranged in the following tabular format: -

Years	Project A	Project B	PV Factor @ 5%	PV of Cash Flows (Project A)	PV of Cash Flows (Project B)
0	-30	-25	1.0000	-30 X 1.0000 = -30	-25 X 1.0000 = -25
1	10	15	0.9524	10 X 0.9524 = 9.5240	15 X 0.9524 = 14.2860
2	15	14	0.9070	15 X 0.9070 = 13.6050	14 X 0.9070 = 12.6980
3	22	11	0.8638	22 X 0.8638 = 19.0036	11 X 0.8638 = 9.5018
NPV (in millions)				Sum of Above = 12.1326	Sum of Above = 11.4858

From the above table: -

NPV for Project A = 12.1326

NPV for Project B = 11.4858

In case you are required to choose between Project A and B using only NPV criterion, Project A should be chosen because of higher NPV.

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