Question: Compute the net present value (NPV) for each project. BioCom uses a discount rate of 9% for projects of average risk. a. Explain the rationale
Compute the net present value (NPV) for each project.
BioCom uses a discount rate of 9% for projects of average risk.
a. Explain the rationale behind the NPV method.
b. State and explain the decision rule for the NPV method.
c. Explain how the company would use the NPV method to rank mutually exclusive projects.
d. Comment on the advantages and shortcomings of this method.
| Cash Flow | Nano Test Tubes | Microsurgery Kits |
| Investment
| -$ 11,000 | -$ 11,000 |
| Cash flow year 1
| $ 2,000 | $ 4,000 |
| Cash flow year 2
| $ 3,000 | $ 4,000 |
| Cash flow year 3
| $ 4,000 | $ 4,000 |
| Cash flow year 4
| $ 5,000 | $ 4,000 |
| Cash flow year 5
| $ 7,000 | $ 4,000 |
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