Capital Budgeting Techniques Using Net Present Value
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Assume the following scenario:
A company is considering two mutually exclusive projects (project A and B). The following shows the expected cash flows:
Year Project A Project B
0 - 30,000 -60,000
1 10,000 20,000
2 10,000 20,000
3 10,000 20,000
4 10,000 20,000
5 10,000 20,000
Cost of capital=14%
Using one of the capital budgeting techniques (ie, NPV, IRR, Profitability Index, or Payback period), explain which is the preferred project.
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Solution Summary
This response determines the preferred project using capital budgeting techniques.
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