Question

# Question 1 A company is deciding among two mutually exclusive projects. Project A’s initial cost is...

Question 1

1. A company is deciding among two mutually exclusive projects. Project A’s initial cost is \$40,000, and Project B’s initial cost is 30,000. The two projects have the following cash flows:

Project A           Project B

Year           Cash Flow     Cash Flow

1               10,000               8,000

2               15,000              12,000

3               20,000              20,000

4               20,000              15,000

The company's weighted average cost of capital is 11 percent. What is the net present value (NPV) of the project A?

 1. 8,982 2. 7,090 3. 7,450 4. 8,630 5. 9,155

1.8,982

 Year Cash Flow Discount factor Present Value a b c=1.11^-a d=b*c 0 -40,000.00 1.0000 -40,000 1 10,000.00 0.9009 9,009 2 15,000.00 0.8116 12,174 3 20,000.00 0.7312 14,624 4 20,000.00 0.6587 13,175 NPV 8,982

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