9. (12%) Net Present Value: You are considering two mutually exclusive projects, Project A and Project B. Using NPV as your decision tool, which project should you accept and why?
Notes:
1) There is no salvage value.
2) There is no further revenue at the end of Year 3 for Project A.
3) There are no additional earnings at the end of Year 2 for Project B.
Show your NPV calculations for both projects.
Project A:
Initial cost: $48,000
Discount Rate: 11.25%
Annual revenues:
Year 1: $18,400
Year 2: $31,300
Year 3: $11,700
Year 4: $0
Project B:
Initial cost: $126,900
Discount Rate: 10.75%
Annual revenues:
Year 1: $69,700
Year 2: $80,900
Year 3: $0
A. NPV Calculations and Final Answer?
B. Best Option?