Answer:
Project B should be the better investment
Explanation:
The computation is shown below;
<u>Project A Cash Flow Discount Factor New Inflows
</u>
(Present Value)
Year
0 ($500,000) 1.000 ($500,000)
1 $150,000 0.885 $132,743
2 $150,000 0.783 $117,472
3 $150,000 0.693 $103,958
4 $150,000 0.613 $91,998
5 $150,000 0.543 $81,414
NPV Total $27,585
<u>Project B Cash Flow Discount Factor New Inflows
</u>
<u>(Present Value)
</u>
<u>Year</u>
0 ($400,000) 1.000 ($400,000)
1 $0 0.885 $0
2 $50,000 0.783 $39,157
3 $200,000 0.693 $138,610
4 $300,000 0.613 $183,996
5 $200,000 0.543 $108,552
NPV total $70,315
Based on the above calculations, the project B contains high net present value as compared with the project A so Project B should be the better investment
