Answers
Ans:
1)
Net present value = Present value of cash inflows - Present value of cash outflows
1) Project X | 2) Project Y | |
Present value of cash inflows | $ 29,480 (8,000*3.685) | $24,600 (60,000*0.410) |
Present value of cash outflows i.e Investment | $ 25,000 | $ 25,000 |
Net present value | $ 4,480 | $ (400) |
.3)Which project would you recommend that the company accept?
Ans: Project X. Because of positive NPV
Note:
1) For project X 6years Annuity factor @16% should be used
2) For project Y Present value factor @16% at the end of 6^{th} year should be used
3) please check Annuity table for present values
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