Question

Your division is considering two projects with the following cash flows (in millions): 0 1 2 3 Project A -$31 $7 $12 $22 Project B -$19 $13 $6 $5 What are the projects' NPVs assuming the WACC is 5%

Answer 1

Project A's NPV = $5.56

Project B's NPV = $3.14

Step-by-step explanation:

year project A project B

0 -$31 -$19

1 $7 $13

2 $12 $6

3 $22 $5

Project A's NPV = -$31 + $7/1.05 + $12/1.05² + $22/1.05³ = -$31 + $36.56 = $5.56

Project B's NPV = -$19 + $13/1.05 + $6/1.05² + $5/1.05³ = -$19 + $22.14 = $3.14