APPLY THE CONCEPTS: Net present value

Project A This project requires an initial investment of $186,120. The project will have a life of 4 years. Annual revenues associated with the project will be $75,000 and expenses associated with the project will be $15,000 for an annual net cash flow of $.

Note: Enter cash flows as positive numbers.

	Cash Flows
Year 0	-$186,120
Year 1
Year 2
Year 3
Year 4

Project B This project requires an initial investment of $210,600. The project will have a life of 4 years. Annual revenues associated with the project will be $80,000, and expenses associated with the project will be $15,000, for an annual net cash flow of $.

	Cash Flows
Year 0	-$210,600
Year 1	________
Year 2	________
Year 3	________
Year 4	________

The cost of capital for the company is 8%.

Use the minus sign to indicate a negative NPV. If an amount is zero, enter"0".

Project A NPV Analysis
Year	Cash Flow		Discount Factor					Present Value
0	$186,120		1.000					$186,120
14	60,000		3.312, 0.735, 3.037					_______
NPV								$_____

Project B NPV Analysis
Year	Cash Flow		Discount Factor					Present Value
0	$210,600		1.000					$210,600
14	65,000		3.312, 0.735, 3.037					________
NPV								$_______

Based upon net present value, which project has the more favorable profit prospects A or B?