Answer:
both companies should invest because the NPV of both companies are positive
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
Only projects with a positive NPV should be accepted. A project with a negative NPV should not be chosen because it isn't profitable.
When choosing between positive NPV projects, choose the project with the highest NPV first because it is the most profitable.
Cash flow in year 0 = - $8.4 million
Cash flow in year 1-7 = $2.2 million
NPV of Lester with I of 15.8% = 0.54 million
NPV of Med Inc with I of 13.7% = 1.12 million
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
0.54
1.12
