Tropical Candy Inc are considering two mutually-exclusive projects, A and B. Their cash flows are shown below. Both Project A and Project B have an estimated cost of capital of 10%. Cash flows will be realized at the end of each time period. Year, tProject A Cash Flow at time tProject B Cash Flow at time t0-1800-60011106602263.7872.63133.153.2441024.87146.4153221.021610.51 Calculate the NPV for each project. Which, if either, project should be accepted? Why?Are there other capital budgeting criteria? If yes, list at least one.

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Tropical Candy Inc are considering two mutually-exclusive projects, A and B. Their cash flows are shown below. Both Project A and Project B have an estimated cost of capital of 10%. Cash flows will be realized at the end of each time period.

Year, t	Project A Cash Flow at time t	Project B Cash Flow at time t
0	-1800	-600
1	110	660
2	263.78	72.6
3	133.1	53.24
4	1024.87	146.41
5	3221.02	1610.51

Calculate the NPV for each project. Which, if either, project should be accepted? Why?
Are there other capital budgeting criteria? If yes, list at least one.

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