The contract to be recommended. Net Present Value (NPV): The net present of a project can be defined as the difference between the present value of the project’s total cost and the present value of the free cash flows. It is not required to consider the information related to the cost of the project. Therefore, the NPV would be negative when the project's cost is higher as compared to the present value of free cash flows. On the other hand, the NPV of the project would be positive when the cost of the project is lower as compared to the present value of the free cash flows.

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Chapter 5, Problem 20P

Summary Introduction

To determine: The contract to be recommended.

Net Present Value (NPV):

The net present of a project can be defined as the difference between the present value of the project’s total cost and the present value of the free cash flows. It is not required to consider the information related to the cost of the project.

Therefore, the NPV would be negative when the project's cost is higher as compared to the present value of free cash flows. On the other hand, the NPV of the project would be positive when the cost of the project is lower as compared to the present value of the free cash flows.

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