Question
XYZ Corporation is considering two mutually exclusive projects, Project A and Project B. The cash flows for each project are shown in the table below.
XYZ Corporation is considering two mutually exclusive projects, Project A and Project B. The cash flows for each project are shown in the table below. The cost of capital for XYZ Corporation is 12%. Which project should the company choose based on the net present value (NPV) method? Show all calculations and provide a justification for your answer.
| Year | Project A Cash Flow | Project B Cash Flow |
|---|---|---|
| 0 | -$800,000 | -$1,200,000 |
| 1 | $400,000 | $500,000 |
| 2 | $400,000 | $500,000 |
| 3 | $400,000 | $500,000 |
| 4 | $400,000 | $500,000 |
| 5 | $400,000 | $500,000 |
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Financial Management Theory and Practice
Authors: Eugene F. Brigham, Michael C. Ehrhardt
15th edition
130563229X, 978-1305632301, 1305632303, 978-0357685877, 978-1305886902, 1305886909, 978-1305632295
