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 |
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Year |
Computation of PV Factor |
PV factor @ 16 % (F) |
Cash Flow C_{A} |
PV (C_{A} x F) |
Cash Flow C_{B} |
PV (C_{B} 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 |
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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.
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