Question

Zellers, Inc. is considering two mutually exclusive projects, A and B. Project A costs $75,000 and is expected to generate $48,000 in year one and $45,000 in year two. Project B cost $80,000 and is evpected to generate $34,000 in year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four. Zellers, Inc.'s required rate of return for these projects is 10%. The net present value for Project B is:

Answer 1

$18,097.12

Step-by-step explanation:

Year Costs)/revenues Discount factor Present value

0 -$80,000.00 1 -$80,000.00

1 $34,000.00 0.909090909 $30,909.09

2 $37,000.00 0.826446281 $30,578.51

3 $26,000.00 0.751314801 $19,534.18

4 $25,000.00 0.683013455 $17,075.34

Total $18,097.12

So, the net present value for Project B is $18,097.12

Note:

Net present value = Present value of cash outflows - Present value of cash in flows.

Discounting factor at 10% ==> Year 0 = 1/1+d)^0 = 1/(1+0.1)^0 = 1/(1.1)^0 = 1/1 = 1