Question

The following are the cash flows of two projects: Year Project A Project B 0 $ (350 ) $ (350 ) 1 180 250 2 180 250 3 180 250 4 180 a. Calculate the NPV for both projects if the opportunity cost of capital is 16%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

NPV = Total PV of cash inflows – Initial investment

Computation NPV in tabular format:               

			Project A		Project B
Year	Computation of PV Factor	PV factor @ 16 % (F)	Cash Flow CA	PV (CA x F)	Cash Flow CB	PV (CB x F)
0	1/(1+0.16)^0	1	($350)	($350)	($350)	($350)
1	1/(1+0.16)^1	0.862068965517241	$180	$155.1724137931	$250	$215.5172413793
2	1/(1+0.16)^2	0.743162901307967	$180	$133.7693222354	$250	$185.7907253270
3	1/(1+0.16)^3	0.640657673541351	$180	$115.3183812374	$250	$160.1644183853
4	1/(1+0.16)^4	0.552291097880475	$180	$99.4123976185
NPV				$153.6725148845		$211.4723850916

NPV of Project A is $ 153.67 and that of Project B is $ 211.47

*There is no cash flow given in year 4 for Project B.