Capital Budgeting

BioMed Engineering is considering two mutually exclusive investments. The projects' expected net cash flows are as follows:

Expected Net Cash Flows

Time Project A Project B

0 ($405) ($705)

1 ($285) $200

2 ($205) $205

3 ($105) $210

4 $605 $215

5 $650 $220

6 $925 $225

7 ($200) $230

In your report, identify which project would be selected (assuming they are mutually exclusive) for each investment criterion. Note that cash outflows (costs) are given in parenthesis. Employ the Excel file to answer the following questions

Part 1: Net Present Value

1. Use the Excel NPV function to calculate the NPV for each project at a cost of capital equal to 8%. Note the range of values in the NPV function should not include the initial cost (CF₀). Make sure to add this separately. (7 points)
2. Use the Excel NPV function to calculate the NPV for each project at a cost of capital equal to 16%. Note the range of values in the NPV function should not include the initial cost (CF₀). Make sure to add this separately. (7 points)

Part 1:

A) Net Present Value at 8% Cost of Capital

Cost of capital =

8%

NPV _A =

Cost of capital =

8%

NPV _B =

B) Net Present Value Project at 16% Cost of Capital

Cost of capital =	16%	NPV A =
Cost of capital =	16%	NPV B =