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15 June, 17:00

Project Year 0 Cash Flow Year 1 Cash Flow Year 2 Cash Flow Year 3 Cash Flow Year 4 Cash Flow Discount Rate A - 100 40 50 60 N/A. 15 B - 73 30 30 30 30.15 22. a) Assume that projects A and B are mutually exclusive. What is the correct investment decision and why? Show your calculations for full credit.

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  1. 15 June, 20:03
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    The answer is: You should invest in Project B since it has a higher NPV ($12.65) than Project A ($12.04)

    Explanation:

    Using an excel spreadsheet we can determine the net present value (NPV function) of the cash flows associated with each project.

    Project A Project B

    40 30

    50 30

    60 30

    0 30

    discount rate for both projects = 15%

    NPV Project A's cash flows = $112.04 minus the amount invested (100) = $12.04

    NPV Project B's cash flows = $85.65 minus the amount invested (73) = $12.65
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Home » Business » Project Year 0 Cash Flow Year 1 Cash Flow Year 2 Cash Flow Year 3 Cash Flow Year 4 Cash Flow Discount Rate A - 100 40 50 60 N/A. 15 B - 73 30 30 30 30.15 22. a) Assume that projects A and B are mutually exclusive.
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