Question

4. Capital Budgeting: This question has five parts. Here you
have to find Net Present Value (NPV) for the two projects.
**(Show all work.)** (15 points)

Expected Net Cash Flows |
||

Year |
Project A |
Project B |

0 |
($5,000) |
($5,000) |

1 |
$700 |
$750 |

2 |
$1,000 |
$1,250 |

3 |
$3,250 |
$3,000 |

4 |
$3,500 |
$3,250 |

______ 4a. If the opportunity cost of capital is 10%, what is the NPV of Project A (round to the nearest penny)?

______ 4b. If the opportunity cost of capital is 10%, what is the NPV of Project A (round to the nearest penny)?

4c. If you have a choice between Project A and Project B, which one would you choose and why?

Answer #1

4a. NPV of Project A =Present Value of Cash Inflows- Present Value of Cash Outflows

= [700*1/(1.1)^1+1000*1/(1.1)^2+3250*1/(1.1)^3+3500*1/(1.1)^4]-5000

= $ 1,295.13

**Answer = $ 1,295.13**

**4b.**

NPV of Project A =Present Value of Cash Inflows- Present Value of Cash Outflows

= [750*1/(1.1)^1+1250*1/(1.1)^2+3000*1/(1.1)^3+3250*1/(1.1)^4]-5000

= $ 1,188.61

**Answer = $ 1,188.61**

**4c. Answer = Project A.**

Note: Since project A has a higher NPV than project B, Project A would be chosen.

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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:
Year
Project X
Project y
0
($10,000)
($10,000)
1
6,500
3,500
2
3,000
3,500
3
3,000
3,500
4
1,000
3,500
Calculate each project’s net present value...

You are a financial analyst for Hittle Company. The director of
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investments, Projects X and Y. Each project has a cost of $10,000,
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cutoff period is 3 years. The projects’ expected net cash flows are
as follows:
Expected Net Cash Flows
Year
Project X
0 ($10,000)
1 6,500
2 3,000
3 3,000
4 1,000
Project Y
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You are a financial analyst for the Brittle Company. The
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Expected Net Cash Flows
Year
Project X
Project Y
0
– $10,000
– $10,000
1
6,500
3,500
2
3,000
3,500
3
3,000
3,500
4
1,000...

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NPV
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-Select-higherlowerCorrect 3 of Item 1 stock price. In equation
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Both projects have 4-year lives, and they have risk characteristics
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0
1
2
3
4
Project A
-920
700...

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