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You work for the 3T company, which expects to earn at least 14 percent on its investments. You have to choose between two similar projects.
You work for the 3T company, which expects to earn at least 14 percent on its investments. You have to choose between two similar projects. Below is the cash flow information for each project. Calculate the NPV of each project. (Use the NPV function in Excel to solve this problem.) Which of the two projects would you fund if the decision is based only on financial information and you could only choose one of the projects?
Omega | Alpha | |||||||||
Year | Inflow | Outflow | Netflow | Year | Inflow | Outflow | Netflow | |||
Y0 | 0 | 222,000 | (222,000 | ) | Y0 | 0 | 214,000 | (214,000 | ) | |
Y1 | 0 | 200,000 | (200,000 | ) | Y1 | 0 | 180,000 | (180,000 | ) | |
Y2 | 150,000 | 0 | 150,000 | Y2 | 150,000 | 0 | 150,000 | |||
Y3 | 220,000 | 30,000 | 190,000 | Y3 | 220,000 | 30,000 | 190,000 | |||
Y4 | 206,000 | 0 | 206,000 | Y4 | 182,000 | 0 | 182,000 | |||
Y5 | 205,000 | 33,000 | 172,000 | Y5 | 205,000 | 41,000 | 164,000 | |||
Y6 | 197,000 | 0 | 197,000 | Y6 | 197,000 | 0 | 197,000 | |||
Y7 | 100,000 | 30,000 | 70,000 | Y7 | 100,000 | 30,000 | 70,000 | |||
Total | 1,078,000 | 515,000 | 563,000 | Total | 1,054,000 | 495,000 | 559,000 | |||
The NPV for OMEGA??
The NPV for ALPHA??
The better project is???
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