3 mutually exclusive projects with a cost of capital of 14% Project X Project Y
ID: 2720579 • Letter: 3
Question
3 mutually exclusive projects with a cost of capital of 14%
Project X Project Y Project Z
Initial investment $78,000 $52,000 $66,000
Year Cash Inflows
1 $17,000 $28,000 $15,000
2 $25,000 $38,000 $15,000
3 $33,000 $15,000
4 $41,000 $15,000
5 $15,000
6 $15,000
7 $15,000
8 $15,000
a.) Calculate the NPV for each project & rank them in descending order based on NPV
b.) Calculate & Rank them according to ANPV
c.) Which project would you implement based on ANPV?
Explanation / Answer
Cash flow Present Value Of Cash Flow Projet X Project Y ProjectZ Discount Factor 14% Projet X Project Y ProjectZ 0 -78000 -52000 -66000 1.0000 -78000 -52000 -66000 1 17000 28000 15000 0.8772 14912.3 24561.4 13157.9 2 25000 38000 15000 0.7695 19236.7 29239.8 11542.0 3 33000 15000 0.6750 22274.1 0.0 10124.6 4 41000 15000 0.5921 24275.3 0.0 8881.2 5 15000 0.5194 0.0 0.0 7790.5 6 15000 0.4556 0.0 0.0 6833.8 7 15000 0.3996 0.0 0.0 5994.6 8 15000 0.3506 0.0 0.0 5258.4 NPV for each project 2698.32 1801.17 3582.96 Rank 2 3 1 Annuity Factor 2.9137 1.6467 4.6389 ANPV NPV/Annuity Factor 926.1 1093.8 772.4 Which project would you implement based on ANPV Project Y Higher ANPV
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