Question

JUING CALCULATOR WORK AND TIME LINES) FOR FULL CREDIT PROBLEM 1: (Make sure to draw the time line for the project) (Show all work for fun creo The following cash Tows are given for the two mutually exclusive projects X and Y. Both Projects an initial investment of $21,000 in time 'O Year Project X Project Y $9,000 $4,000 5,000 7,000 8,000 9,000 8,000 7,000 5,000 5,000 (a) Calculate the NPV for each project using a discount rate of 15 %. (b) State your accept/reject decision 1111 fue nuninnti Show all work for full credit)

Answer 1

A 3478.26 B C D E Project X: Year Cash flow PV factor @15% Present value -21000 -21000 1 4000 0.86961 5000 0.7561 3780.72 0.65751 4602.61 8000 0.5718 4574.03 9000 0.4972 4474.59 NPV -89.79 7000 5 NPV is negative. So project X should not be accepted. 15 16 17 18 Project Y: Year Cash flow PV factor @15% Present value -21000 -21000 9000 0.8696 7826.09 8000 0.7561 6049.15 7000 0.6575 4602.61 5000 0.5718 2858.77 5000 0.4972 2485.88 NPV 2822.50 AWN NPV is positive. So, Project Y can be accepted.

Excel formula:

А В Project X: Year Cash flow -21000 4000 5000 7000 8000 9000 PV factor @15% =1/(1+0.15)^B3 =1/(1+0.15)^B4 =1/(1+0.15)^B5 =1/(1+0.15)^B6 = 1/(1+0.15)^B7 =1/(1+0.15)^B8 NPV Present value =C3*D3 =C4*D4 =C5*D5 =C6*D6 =C7*DZ =C8*D8 =SUM(E3:E8) NPV is negative. So project X should not be accepted. 12 13 14 Project Y: Year Cash flow -21000 9000 8000 7000 5000 PV factor @15% =1/(1+0.15)^B15 =1/(1+0.15)^B16 1=1/(1+0.15)^B17 =1/(1+0.15)^B18 =1/(1+0.15)^B19 =1/(1+0.15)^B20 NPV Present value =C15*D15 =C16*D16 =C17*D17 =C18*D18 =C19*D19 =C20*D20 =SUM(E15:E20) 5000 NPV is positive. So, Project Y can be accepted. 24