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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![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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa111f041-7d0d-4347-853d-a00efbb3e4a0%2F4cd60ce1-bf28-4768-8b5b-7a490d2dfa2e%2Fhmc3adh_processed.jpeg&w=3840&q=75)
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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