Answer:
Accept Project B , Reject Project A
Explanation:
Net present value is the present value of after tax cash flows from an investment less the amount invested.
NPV can be found using a financial calculator
For project A ,
Cash flow in year 0 = $-87,000
Cash flow in year 1 = $32,600
Cash floe in year 2 = $35,900
Cash floe in year 3 = $43,400
I = 9.2%
NPV = $6,288.17
For project B,
Cash flow in year zero = −$85,000
Cash flow in year 1 = $14,700
Cash flow in year 2 = $21,200
Cash flow in year 3 = $89,800
I = 12.7%
NPV = $7,468.93
Based on the NPV, the second project would be chosen because it has a higher NPV.
Both projects are profitable but because the projects are mutually exclusive, only the more profitable project can be chosen.
To find the NPV using a financial calacutor:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
I hope my answer helps you
