Question 5 20 pts Jupiter company is considering investing in Project Flash (2-y

Question

Question 5 20 pts Jupiter company is considering investing in Project Flash (2-year) or Project Thunder (4-year). Project Flash generates the following cash flows: year “zero"-118 dollars (outflow); year 1-255 dollars (inflow); year 2 272 dollars (inflow). Project Thunder generates the following cash flows: year "zero" = 300 dollars (outflow); year 1-200 dollars (inflow); year 2 = 250 dollars (inflow); year 3 = 150 dollars (inflow); year 4-100 dollars (inflow). The MARR is 10%. Applying the "proper way to use Net Present Value when projects have different lives", calculate the "adjusted" NPV of the BEST project. (note: round your answer to the nearest cent, and do not include spaces, currency signs, plus or minus signs, or commas)

Explanation / Answer

We need to repeat the cycle for project flash twice so that the cash flows are

At MARR = 10%. we have NPV

NPV(flash) = -118 + 255(P/F, 10%, 1) + 92(P/F, 10%, 2) + 255(P/F, 10%, 3) + 272(P/F, 10%, 4) = -118 + 231.82 + 76.03 + 191.59 + 185.78 = 567.22

NPV(Thunder) = -300 + 250(P/F, 10%, 1) + 200(P/F, 10%, 2) + 150(P/F, 10%, 3) + 400(P/F, 10%, 4) = -300 + 181.82 + 206.61 + 112.70 + 273.21 = 474.34

Since NPV of Flash project is higher, it should be selected.

EOY Project Flash Project Thunder 0 -118 -300 1 255 200 2 272-180=92 250 3 255 150 4 272 400

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