Question

Your division is considering two projects with the following cash flows (in millions): 0 1 2 3 Project A -$16 $7 $9 $10 Project B -$26 $14 $20 $11 What are the projects' NPVs assuming the WACC is 5%

Answer 1

NPV project A = $7.47 million

NPV project B = $14.98 million

Step-by-step explanation:

Net present value is the present value of after tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator:

For project A :

Cash flow in year 0 = -$16

Cash flow in year 1= $7

Cash flow in year 2 = $9

Cash flow in year 3 = $10

I = 5%

NPV = $7.47 million

For project B

Cash flow in year 0 = -$26

Cash flow in year 1 = $14

Cash flow in year 2 = $20

Cash flow in year 3 = $11

I = 5%

NPV = $14.98 million

To find the NPV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you