Question: Background : Two projects, C and D, are being considered by a firm. Project C requires an initial investment of $20,000, while Project D requires
Background: Two projects, C and D, are being considered by a firm. Project C requires an initial investment of $20,000, while Project D requires $25,000. The expected cash flows for both projects over six years are listed below. Calculate the NPVs using a discount rate of 8%.
Cash Flows:
Year | Project C | Project D |
0 | -$20,000 | -$25,000 |
1 | $6,000 | $5,000 |
2 | $7,000 | $6,000 |
3 | $8,000 | $7,000 |
4 | $9,000 | $8,000 |
5 | $10,000 | $9,000 |
6 | $11,000 | $10,000 |
Requirements:
- Calculate the NPV for each project using a discount rate of 8%.
- State your accept/reject decision for each project.
- If the projects were independent, what would be your accept/reject decision?
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