X-treme Vitamin Company is considering two investments, both of which cost $50,000. The cash flows are...
X-treme Vitamin Company is considering two investments, both of which cost $50,000. The cash flows are as follows:
| Year | Project A | Project B | ||||
| 1 | $ | 54,000 | $ | 50,000 | ||
| 2 | 30,000 | 29,000 | ||||
| 3 | 20,000 | 30,000 | ||||
b-1. Calculate the net present value for Project A and Project B. Assume a cost of capital of 7 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places.)
Project A= __?___
Project B= __?___
Homework Answers
A:
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=54000/1.07+30,000/1.07^2+20,000/1.07^3
=$92996.41
NPV=Present value of inflows-Present value of outflows
=$92996.41-$50,000
=$42996.41(Approx).
B:
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=50,000/1.07+29,000/1.07^2+30,000/1.07^3
=$96547.63
NPV=Present value of inflows-Present value of outflows
=$96547.63-$50,000
=$46547.63(Approx).
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