QUESTION 6 (10 marks)

Micro-Expansion Industries is expanding its operations. The costs and expected cash flows of two mutually exclusive projects are given in the following table. The company uses a discount rate of15.25percent per annum for such projects.

Year

Project A

Project B

0

$-2,050,387

$-8,463,486

1

724,542

2,142,257

2

760,803

3,006,508

3

866,964

2,621,255

4

1,035,769

3,442,170

5

676,061

2,581,350

a)What is the net present value (NPV) of Project A? (4 marks)

b)What is the net present value (NPV) of Project B? (4 marks)

c)Which project should Micro-Expansion choose and why? (2 marks)