The following are the cash flows of 2 independent projects Year 0, Project A $270, Project B $270 Year 1, Project A $150, Project B $170 Year 2, Project A $150, Project B $170 Year 3 Project A $150, Project B $170 Year 4 Project A $150, Project B If the opportunity cost of capital is 12%. Calculate the NPV for both projects Project A - NPV? Project B - NPV? Which of these is worth pursuing? A, B, or neither?

The following are the cash flows of 2 independent projects Year 0, Project A $270, Project B $270 Year 1, Project A $150, Project B $170 Year 2, Project A $150, Project B $170 Year 3 Project A $150, Project B $170 Year 4 Project A $150, Project B If the opportunity cost of capital is 12%. Calculate the NPV for both projects Project A - NPV? Project B - NPV? Which of these is worth pursuing? A, B, or neither?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 13P

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

100%

The following are the cash flows of 2 independent projects

Year 0, Project A $270, Project B $270

Year 1, Project A $150, Project B $170

Year 2, Project A $150, Project B $170

Year 3 Project A $150, Project B $170

Year 4 Project A $150, Project B

If the opportunity cost of capital is 12%. Calculate the NPV for both projects

Project A - NPV?

Project B - NPV?

Which of these is worth pursuing?

A, B, or neither?

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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