Consider the following cash flows on two mutually exclusive projects: Year Project A Project B 0 –$ 56,000 –$ 71,000 1 36,000 35,000 2 31,000 44,000 3 26,000 47,000 The cash flows of Project A are expressed in real terms, whereas those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 12 percent and the inflation rate is 3 percent. Calculate the NPV for each project. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) NPV FOR PROJECT A: NPV FOR PROJECT B:
Consider the following cash flows on two mutually exclusive projects: Year Project A Project B 0 –$ 56,000 –$ 71,000 1 36,000 35,000 2 31,000 44,000 3 26,000 47,000 The cash flows of Project A are expressed in real terms, whereas those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 12 percent and the inflation rate is 3 percent. Calculate the NPV for each project. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) NPV FOR PROJECT A: NPV FOR PROJECT B:
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 7P
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Consider the following cash flows on two mutually exclusive projects: |
Year | Project A | Project B | ||
0 | –$ | 56,000 | –$ | 71,000 |
1 | 36,000 | 35,000 | ||
2 | 31,000 | 44,000 | ||
3 | 26,000 | 47,000 | ||
The cash flows of Project A are expressed in real terms, whereas those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 12 percent and the inflation rate is 3 percent. |
Calculate the NPV for each project. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
NPV FOR PROJECT A:
NPV FOR PROJECT B:
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