Question

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

Answer 1

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