Mutually exclusive investments. The following are cash flows of two projects. Year Project A Project B 0 $ (200)...

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Finance

Mutually exclusive investments.
The following are cash flows of two projects.
Year Project A Project B
0 $ (200) $ (200)
1 80 100
2 80 100
3 80 100
4 80
Calculate the NPV for both projects if the discount rate is11%(Do not intermediate calculations.Round your answer to 2 decimalplaces)
Suppose that you can only choose one of the these projects.Which would you choose ?
project A
Project B
Neither

Answer & Explanation Solved by verified expert

4.1 Ratings (793 Votes)

Project A

Year	Cashflow	PVF@11%	*CashflowPVF**
0	(200)	1	(200.00)
1	80	0.9009	72.07
2	80	0.8116	64.93
3	80	0.7312	58.50
4	80	0.6587	52.70

NPV = PV of inflows-PV of outflows

= (72.07+64.93+58.5+52.7)-200

= 248.2-200

= $48.20

Project B

Year	Cashflow	PVF@11%	*CashflowPVF**
0	(200)	1	(200.00)
1	100	0.9009	90.09
2	100	0.8116	81.16
3	100	0.7312	73.12

NPV = PV of inflows-PV of outflows

= (90.09+81.16+73.12)-200

= 244.37-200

= $44.37

Decision: Since both have positive NPV,both are acceptable. When the projects are mutually exclusive,Select one which has higher NPV, project A

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Transcribed Image Text

Mutually exclusive investments.The following are cash flows of two projects.Year Project A Project B0 $ (200) $ (200)1 80 1002 80 1003 80 1004 80Calculate the NPV for both projects if the discount rate is11%(Do not intermediate calculations.Round your answer to 2 decimalplaces)Suppose that you can only choose one of the these projects.Which would you choose ?project AProject BNeither