Question

# The following are the cash flows of two projects: Year Project A Project B 0 \$...

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.)

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.

#### Earn Coins

Coins can be redeemed for fabulous gifts.