Question

Consider three mutually exclusive projects (A, B, and C)

Cash Flows A B C

First Cost 1,850.00 $1,850.00 $1,900.00

Uniform annual benefit $90.00 315.00 325.00

Salvage value 135.00 405.00 $360.00

Useful life, in years 6 7 8


When each project reached the end of its useful life, it would be sold for its salvage value and there would be no replacement. Plot the net present worth (NPW) of each project on the same chart with interest rates ranging from 0% to 25%

Answer 1

Assuming a range of interest rates 0%, 5%, 10%, 15%, 20%, 25%

The below listed are the Net present Values

Project A

1,175

1292

1382

1451

1505

1549

Project B

760

261

-100

-387

-602

-769

Project C

1,110

494

52

-274

-519

-708

The Net Present Value of a project is the evaluation of a project Net Cash flows based on time value of money and bench-marked against the required rate of return the business considers minimum.

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