Project S costs $15,000 and its expected cash flows would be $4,500 per year for 5 years....
Project S costs $15,000 and its expected cash flows would be $4,500 per year for 5 years. Mutually exclusive project L costs $37,300, and its expected cash flows would be $11,000 per year for 5 years. If both projects have a WACC of 14%, which project would you recommend? Explain.
Net Present Value:
Net present value is computed by deducting the present value of cash outflows from the present value of cash inflows. It is considered one of the best capital budgeting techniques used for project evaluation.
Answer and Explanation: 1
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Computation of net present value
|Project S||Project L|
|Year||PVF @ 14%||Amount||Present...|
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fromChapter 5 / Lesson 20
Learn about what net present value is, how it is calculated both for a lump sum and for a stream of income over multiple years. View some examples on NPV.
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