Consider the following two projects: Initial Outlay Net Cash Flow Each Period 1
ID: 2706417 • Letter: C
Question
Consider the following two projects:
Initial Outlay Net Cash Flow Each Period
1 2 3 4
Project A $4,000 $2,003 $2,003 $2,003 $2,003
Project B $4,000 $10,736
A. Calculate the net present value of each of the above projects, assuming a 14 percent discount rate.
B. If 14 Percent is the required rate of return for these projects, which project is preferred? Why?
Explanation / Answer
a) net present value of A = -4000+2003*(1-1.14^-4)/0.14 =1836.16
net present value of B = -4000+10736/1.14^4= 2356.57
b) project B should be selected