The following are the cash flows of two independent projects:                                                                   Project B Year   Project A 0   (380)     (380)   1   210     280   2   210     280   3   210     280

Financial And Managerial Accounting
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ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...
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The following are the cash flows of two independent projects:

                                                                  Project B

Year   Project A
0   (380)     (380)  
1   210     280  
2   210     280  
3   210     280  
4   210        
 

 

a. If the opportunity cost of capital is 11%, calculate the NPV for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Project A NVP:

Project B NVP:

b. Which of these projects is worth pursuing?

  • Project A
  • Project B
  • Both
  • Neither

 

 

Expert Solution
Step 1

NPV is net present value given by difference between present value of cash flow and initial investment.

Positive NPV suggest that projects are acceptable and negative NPV are indicated that projects should not be accepted.

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