Consider the following information relating to the expected cash flows from two independent projects. The cash flows are expressed in real terms, the nominal discount rate is 10% p.a. and the expected inflation rate is 4% p.a. Time 0 1 2 3 4 5 6 Project 1 -$200,000 $50,000 $50,000 $50,000 $50,000 $50,000 Project 2 -$250,000 $65,000 $65,000 $65,000 $65,000 $65,000 $65,000 a) Calculate the NPV of each of the projects b) In no more than 6 lines, explain which of the above projects you should select and why?

Consider the following information relating to the expected cash flows from two independent projects. The cash flows are expressed in real terms, the nominal discount rate is 10% p.a. and the expected inflation rate is 4% p.a. Time 0 1 2 3 4 5 6 Project 1 -$200,000 $50,000 $50,000 $50,000 $50,000 $50,000 Project 2 -$250,000 $65,000 $65,000 $65,000 $65,000 $65,000 $65,000 a) Calculate the NPV of each of the projects b) In no more than 6 lines, explain which of the above projects you should select and why?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 16EB: Project Y cost $8,000 and will generate net cash inflows of $1,500 in year one, $2,000 in year two,...

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