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Net Present Value

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