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# Net Present Value

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Use the information below to answer the following question(s).

Consider the following two mutually exclusive projects, each of which requires an initial investment of \$30,000 and both provide cash inflows of \$60,000 as shown below. This organization has a 15% cost of capital.

Year Project A Project B
0 (\$30,000) (\$30,000)
1 \$30,000 \$10,000
2 20,000 20,000
3 10,000 30,000

Using the net present value criterion, which is the most desirable project?

a. a. Project B
b. b. Project A
c. c. Both projects A and B are equally acceptable.
d. d. The desirability cannot be determined using the current information.

#### Solution Preview

Consider the following two mutually exclusive projects, each of which requires an initial investment of \$30,000 and both provide cash inflows of \$60,000 as shown below. This organization has a 15% cost of capital.
Year Project A Project B
0 (\$30,000) (\$30,000)
1 \$30,000 \$10,000
2 20,000 20,000
3 10,000 30,000

Using the net present value criterion, which is ...

#### Solution Summary

Net Present Value of two mutually exclusive projects have been calculated to find the most desirable project.

\$2.19