# Two projects, Project A and Project B, are available, each costing $500,000. The discount rate is...

## Question:

Two projects, Project A and Project B, are available, each costing $500,000. The discount rate is 10%. Considering the cash flows given below, which project would be more profitable using the net present value (NPV) method?

Year | Project A | Project B |

1 | 150,000 | 50,000 |

2 | 200,000 | 150,000 |

3 | 250,000 | 200,000 |

4 | 150,000 | 300,000 |

5 | 100,000 | 200,000 |

## Net Present Value:

The net present value is a tool to determine a project's profitability by comparing the present value of its cash flows with the investment cost. For a project to be accepted, the present value of cash flows should be greater than the investment cost.

## Answer and Explanation: 1

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View this answerThe company should select **Project A** as it has a higher NPV compared to Project B.

** Net present value of Project A:**

Year | Cash inflows | PVAF @ 10% | Pres... |

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Chapter 5 / Lesson 20Learn 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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