Question
1. Your company is evaluating two project proposals using NPV as the capital budgeting technique. Below is the NPV calculation for the two projects Project
1. Your company is evaluating two project proposals using NPV as the capital budgeting technique. Below is the NPV calculation for the two projects
Project A
| Annual Cash Flow | $14.00 |
| PVIFA (5,10%) | 3.791 |
| Present Valuw of Cash Flow | $53.07 |
| Initial Investment | $42.00 |
| NPV | $11.07 |
Project B
| Tahun | Cash Inflow | PVIF (5,10%) | PV |
| 1 | 5 | 0.909 | 4.545,45 |
| 2 | 5 | 0.26 | 4.132,23 |
| 3 | 40 | 0.751 | 30.052,59 |
| 4 | 10 | 0.683 | 6.830,13 |
| 5 | 10 | 0.621 | 6.209,21 |
| PV of Cash Inflows | $51.769,63 | ||
| Initial Investment | $45.000 | ||
| Net Present Value | $6.769,63 | ||
Comment on the followings:
a) Which project should win and why
b) In a seemingly unconventional move, the company investment panel and the company Board eventually take their discretionary position and decide that project B to proceed: what would be their reasons to choose project B over A?
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Analysis For Financial Management
Authors: Robert Higgins, Jennifer Koski, Todd Mitton
13th Edition
1260772365, 978-1260772364
