Godiva Chocolatier is considering one of three mutually exclusive projects for opening a chocolate factory in Bruges, Gent, or Liege. The firm plans to use a 10% cost of capital to evaluate these equal-risk projects. The initial investment and annual cash inflows over the life of each project are given in the following table

a. Calculate the NPV for each project over its life. Rank the projects in descending order on the basis of NPV.

b. Use the annualized net present value (ANPV) approach to evaluate and rank the projects in descending order on the basis of ANPV.

c. Compare and contrast your findings in parts a and b. Which project would you recommend that the firm accept? Why?

Transcribed Image Text:

Bruges Gent Liege Initial investment (CFO) -88,000,000 50,000,000 -68,000,000 Year (t) Cash inflows (CF) 1 2 3 4 5 6 18,000,000 30,000,000 35,000,000 42,000,000 11,000,000 28,000,000 18,000,000 38,000,000 18,000,000 10,000,000 18,000,000 18,000,000 18,000,000 18,000,000