Exercise 01 A company considers investing into two mutually exclusive projects. Both have an initial investment cost of $2,000 and the following expected year-end net cash flows: Year Project A Project B 1 1,000 200 2 800 600 3 600 800 Assuming a discount rate for both projects of 10%, which project should the company pursue? 4 200 1,200 Project A Discount rate 10% Year 1 2 3 Discount factor CF ($) DCF ($) NPV ($) NPV ($) - Using NPV formula; computing the PV of the cash flows and adding them together Using Excel's NPV function Project B Discount rate 10% Year 0 1 2 3 4 Discount factor CF ($) DCF ($) NPV ($) NPV ($) -Using NPV formula; computing the PV of the cash flows and adding them together - Using Excel's NPV function PV FV (1+r)N = FV [(1++] =FV Discount factor