Project A has an initial outlay of $65,000. The project will generate the following cash inflows: $7,500 in one year, $8,000 in 2 years and $9,000 each year from the end of year 3 to the end of year 14 inclusive. The cost of capital is 10% p.a. effective. i. Calculate the net present value (NPV) for Project A. Project B has a net present value of -$200. If Project A and Project B are mutually exclusive projects, which project should be accepted? Provide your reasons. ii.
Project A has an initial outlay of $65,000. The project will generate the following cash inflows: $7,500 in one year, $8,000 in 2 years and $9,000 each year from the end of year 3 to the end of year 14 inclusive. The cost of capital is 10% p.a. effective. i. Calculate the net present value (NPV) for Project A. Project B has a net present value of -$200. If Project A and Project B are mutually exclusive projects, which project should be accepted? Provide your reasons. ii.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:a) Answer parts i and i based on the information below:
Project A has an initial outlay of $65,000. The project will generate the following cash inflows: $7,500 in
one year, $8,000 in 2 years and $9,000 each year from the end of year 3 to the end of year 14 inclusive.
The cost of capital is 10% p.a. effective.
i.
Calculate the net present value (NPV) for Project A.
ii.
Project B has a net present value of -$200. If Project A and Project B are mutually exclusive
projects, which project should be accepted? Provide your reasons.
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