Quiz Me: Quiz Me: 10.3 Explain how the capital-Buugetlnly u This Question: 1 pt

Question

Quiz Me: Quiz Me: 10.3 Explain how the capital-Buugetlnly u This Question: 1 pt 3 of 5 This Quiz: 5 pts possible (Mutually exclusive projects and NPV) You have been assigned the task of evaluating two mutually excusve appropriate disount rate on these projects is 11 percent, which would be chosen and why? What is the NPV of project A? projects with the following projected cash ows EB the s (Round to the nearest cent.) What is the NPV of project B? Round to the nearest cent.) Which project would be chosen and why? (Select the best choice below) O A. Cannot choose without comparing their IRRs. O B. Choose A because its NPV is higher. O C. Choose B because its NPV is higher. O D. Choose both because they both have positive NPVs. Data Table PROJECT B CASH FLOW PROJECTA CASH FLOW - $100,000 33,000 33,000 33,000 33,000 33,000 YEAR $100,000 230,000 (Click on the icon located on the top-right corner of the data table above in order to copy its contents into a spreadsheet) Print Done Click to select your answer(s). Save for Later

Explanation / Answer

A) NPV is a difference between present value of cash inflows and cah outflows

Enter the below in any Financial Caluclator

CF0= -100,000

CF1= 33000

CF2= 33000

CF3= 33000

CF4= 33000

CF5= 33000

I = 11

Caluclate NPV

NPV=21,964.60

Similarly for Project B

Caluclate NPV

CF0= - 100,000

CF1= 0

CF2= 0

CF3= 0

CF4= 0

CF5= 230,000

Caluclate NPV

NPV=36,493.80

NPV of B 36,493.80>NPV of Project A 21,964.60

As projects are mutually exclusive we have to accept project with Highest NPV

So Select Project B

For above question Answer is Option "C"

Choose B as it has Highest NPV

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