Answer:
The first project should be chosen
Explanation:
Net present value is the present value of after-tax cash flows from an investment less the amount invested.
NPV can be calculated using a financial calculator
To determine which project to accept, calculate the NPV for the two projects
The first option
Cash flow in year 0 = $-25 million
Cash flow each year for year 1 - 5 = $10 million
Cash flow in year 6 = $10 million - $15 million = $-5 million
I = 9.5
NPV = $10.50 million
Option two
Cash flow in year 0 = $-12 million
Cash flow each year for year 1 - 6 = $4 million
I = 9.5
NPV = $5.68 million
The first option should be chosen because the NPV of the first option yields the higher NPV
To find the NPV using a financial calculator:
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
