Answer:
b. No, the NPV calculation will take into account not only the project's cash inflows but also the timing of cash inflows and outflows. Consequently, Project B could have a larger NPV than Project A, even though Project A has larger cash inflows.
Explanation:
The net present value is the present value of after tax cash flows from an investment less the amount invested.
An example:
Suppose there are two projects with a cash outlay of $500.
The cash flow for project A :
Cash flow from year 1 to 3 =$0
Cash flow from year 4 to 7 =$ 500
WACC = 10%
Using a financial calculator, the NPV =$690.78
The cash flow for project B
Cash flow for year one and two =$300
Cash flow for year three = $100
Cash flow for year four and five =$500
WACC = 10%
using a financial calculator, the NPV = $747.76
From this example, even though the cash flow from project A is higher than the cash flow from project B, project B's NPV is higher.
I hope my answer helps you.
