Consider the following cash inflows and outflows related to project 1 and project 2. CASH INFLOWS AND
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Consider the following cash inflows and outflows related to project 1 and project 2.
CASH INFLOWS AND OUTFLOWS FOR TWO PROJECTS | ||||||
Project 1 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 |
Benefits | 1000 | 500 | 850 | 650 | 1500 | 500 |
Costs | 1200 | 400 | 800 | 300 | 1000 | 300 |
Project 2 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 |
Benefits | 1000 | 765 | 431 | 104 | 350 | 350 |
Costs | 573 | 388 | 500 | 100 | 139 | 300 |
For each project,
Calculate the cash flow in a table.
calculate the NPV assuming 12% discount rate, and determine which of the two projects would you prefer?
Show the detailed calculation with the formula to justify your answer.
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