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Mutually exclusive investments. The following are cash flows of two projects. Year  Project A Project B 0 $ (200)...

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Finance

Mutually exclusive investments.

The following are cash flows of two projects.

Year  Project A Project B

0 $ (200) $ (200)

1 80 100

2 80 100

3 80 100

4 80

Calculate the NPV for both projects if the discount rate is11%(Do not intermediate calculations.Round your answer to 2 decimalplaces)

Suppose that you can only choose one of the these projects.Which would you choose ?

project A

Project B

Neither

Answer & Explanation Solved by verified expert
4.1 Ratings (793 Votes)

Project A

Year Cashflow PVF@11% Cashflow*PVF
0                    (200) 1              (200.00)
1                        80 0.9009                   72.07
2                        80 0.8116                   64.93
3                        80 0.7312                   58.50
4                        80 0.6587                   52.70

NPV = PV of inflows-PV of outflows

= (72.07+64.93+58.5+52.7)-200

= 248.2-200

= $48.20

Project B

Year Cashflow PVF@11% Cashflow*PVF
0                    (200) 1              (200.00)
1                      100 0.9009                   90.09
2                      100 0.8116                   81.16
3                      100 0.7312                   73.12

NPV = PV of inflows-PV of outflows

= (90.09+81.16+73.12)-200

= 244.37-200

= $44.37

Decision: Since both have positive NPV,both are acceptable. When the projects are mutually exclusive,Select one which has higher NPV, project A
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Transcribed Image Text

Mutually exclusive investments.The following are cash flows of two projects.Year  Project A Project B0 $ (200) $ (200)1 80 1002 80 1003 80 1004 80Calculate the NPV for both projects if the discount rate is11%(Do not intermediate calculations.Round your answer to 2 decimalplaces)Suppose that you can only choose one of the these projects.Which would you choose ?project AProject BNeither

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