The following are the cash flows of two independent projects:                                                                   Project B Year   Project A 0   (380)     (380)   1   210     280   2   210     280   3   210     280

Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows
Section: Chapter Questions
Problem 23SP: Start with the partial model in the file Ch10 P23 Build a Model.xlsx on the textbooks Web site....
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The following are the cash flows of two independent projects:

                                                                  Project B

Year   Project A
0   (380)     (380)  
1   210     280  
2   210     280  
3   210     280  
4   210        
 

 

a. If the opportunity cost of capital is 11%, calculate the NPV for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Project A NVP:

Project B NVP:

b. Which of these projects is worth pursuing?

  • Project A
  • Project B
  • Both
  • Neither

 

 

Expert Solution
Step 1

NPV is net present value given by difference between present value of cash flow and initial investment.

Positive NPV suggest that projects are acceptable and negative NPV are indicated that projects should not be accepted.

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