A company is evaluating two projects, A and B, for investment during the upcoming fiscal period. A total of $850,000 is available for investment in projects during the period, and the company's current hurdle rate is 20%.
Given the information below, calculate the Net Present Value for the project. Which project(s) would you select based on NPV, and why?
Project A has a startup cost of $650,000. Cash inflows are $200,000 in year 1, $250,000 in year 2, $325,000 in year 3, and $250,000 in year 4.
Project B has a startup cost of $750,000. Cash inflows are $300,000 in year 1, $325,000 in year 2, $250,000 in year 3, and $200,000 in year 4.
Interest rates for 20% hurdle rate:
|
Rate:
|
20%
|
|
Year
|
0
|
1.0000
|
|
1
|
0.8333
|
|
|
2
|
0.6944
|
|
3
|
0.5787
|
|
4
|
0.4823
|
|
5
|
0.4019
|
|
6
|
0.3349
|
|
7
|
0.2791
|
|
8
|
0.2326
|
|
9
|
0.1938
|
|
10
|
0.1615
|
(TCO C) A company is evaluating two projects, A and B, for investment during the upcoming fiscal period. A total of $850,000 is available for investment in projects during the period, and the company's current hurdle rate is 20%.
Given the information below, calculate the Net Present Value for the project. Which project(s) would you select based on NPV, and why?
Project A has a startup cost of $650,000. Cash inflows are $200,000 in year 1, $250,000 in year 2, $325,000 in year 3, and $250,000 in year 4.
Project B has a startup cost of $750,000. Cash inflows are $300,000 in year 1, $325,000 in year 2, $250,000 in year 3, and $200,000 in year 4.
Interest rates for 20% hurdle rate:
|
Rate:
|
20%
|
|
Year
|
0
|
1.0000
|
|
1
|
0.8333
|
|
|
2
|
0.6944
|
|
3
|
0.5787
|
|
4
|
0.4823
|
|
5
|
0.4019
|
|
6
|
0.3349
|
|
7
|
0.2791
|
|
8
|
0.2326
|
|
9
|
0.1938
|
|
10
|
0.1615
|