Question

Consider the following two investment opportunities. The investor's MARR is 10% and the investor only has enough funds to invest in one of the projects. Which one should be chosen? 3 5 -800 215 215 215 215 215 Project B: 2 4 5 -800 100 100 100 100 900

Answer 1

NPW of project A = -800 + 215 * (P/A, 10%,5) = -800 + 215 * 3.790787 = 15.02

NPW of Project B = -800 + 100 * (P/A, 10%,5) + 800 * (P/F,10%,5)

= -800 + 100 * 3.790787 + 800 * 0.620921

= 75.82

As NPW of Project B is more it should be selected

Answer 2

SOLUTION :

NPV of project A 

= - 800 + 215(1.10^5 - 1)/(0.10 * 1.10^5)

= 15.019 

NPV of project B

= - 800 + 100(1.10^4 - 1)/(0.10 * 1.10^4) + 900/1.10^5

= 75.816

Project B has higher NPV, so it should be chosen for investment. (ANSWER)