Question

The cost of capital is 15%. Cash flows associated with projects A,B,C,D,E are:

	CF0	CF1	CF2	CF3
A	-100	30	150	70
B	-66	30	50	60
C	-33	40	20	40
D	-66	60	50	30
E	-50	60	50	20

What will be the total NPV of the projects that you end up undertaking if you have 100 of cash to invest?

Please round your answer to the second decimal.

Answer 1

NPV of project A = -100+30*PVF(15%, 1 year) + 150*PVF(15%, 2 years) + 70*PVF(15%, 3 years)

= -100 + 30*0.870 + 150*0.756 + 70*0.658

= $85.56

Project B = - 66 + 30*0.870 + 50*0.756 + 60*0.658

= $37.38

Project C = -33 + 40*0.870 + 20*0.756 + 40*0.658

= $43.24

Project D = -66 + 60*0.870 + 50*0.756 + 30*0.658

= $43.74

Project E = -50 + 60*0.870 + 50*0.756 + 20*0.658

= $53.16

Since we have only 100 cash, options are:

Accept A , NPV = $85.56

Accept C and , NPV = 43.24+43.74 = $86.98

Accept E and C , NPV = $43.24+53.16 = $96.4

Hence, the answer is $96.4