Consider the following two mutually exclusive projects:
| Year | Cash Flow (A) | Cash Flow (B) |
| 0 | –$218,917 | –$16,419 |
| 1 | 25,700 | 5,985 |
| 2 | 53,000 | 8,370 |
| 3 | 58,000 | 13,931 |
| 4 | 420,000 | 8,655 |
Whichever project you choose, if any, you require a 6 percent
return on your investment.
What is the NPV for Project A?
What is the NPV for Project B?
A:
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=25700/1.06+53000/1.06^2+58000/1.06^3+420,000/1.06^4
=$452,792.35
NPV=Present value of inflows-Present value of outflows
=$452,792.35-$218917
=$233,875.35(Approx).
B:
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=5985/1.06+8370/1.06^2+13931/1.06^3+8655/1.06^4
=$31647.80
NPV=Present value of inflows-Present value of outflows
=$31647.80-$16419
=$15228.80(Approx).
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