Question

The following are the cash flows of two projects: Year Project A Project B 0 $ (210 ) $ (210 ) 1 90 110 2 90 110 3 90 110 4 90 a. Calculate the NPV for both projects if the opportunity cost of capital is 17%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

A:

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=90/1.17+90/1.17^2+90/1.17^3+90/1.17^4

90[1/1.17+1/1.17^2+1/1.17^3+1/1.17^4]

=(90*2.74323501)

=$246.89

NPV=Present value of inflows-Present value of outflows

=$246.89-$210

=$36.89(Approx).

B:

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=110/1.17+110/1.17^2+110/1.17^3

110[1/1.17+1/1.17^2+1/1.17^3]

=(110*2.209584962)

=$243.05

NPV=Present value of inflows-Present value of outflows

=$243.05-$210

=$33.05Approx).