Two alternatives have the following cashflows.

Year A B

0 - $6000

1 - $500

2 - $1000

3 - $1500

4 - $2000

5 - $2500

-$6000 - $7500

Based on a 9% interest rate, which alternative should be selected?

Instructions are listed below.

Explanation:

Giving the following information:

Year A B

0 - $6000

1 - $500

2 - $1000

3 - $1500

4 - $2000

5 - $2500

-$6000 - $7500

We don't have enough information to determine which project is the best. We need the cash flow of Project B.

But, I can provide with the Net Present Value (NPV) formula and calculate the NPV of project A. The project with the higher NPV is more profitable.

To calculate the Net present value, we need to discount the cash flows.

NPV = - Io + ∑[Cf / (1+i) ^n]

Cf = cash flow

Project A:

NPV = - 6,000 + 500/1.09 + 1,000/1.09^2 + 1,500/1.09^3 + 2,000/1.09^4 + 2,500/1.09^5

NPV = - $499.65