Question: Goodgrade Corp. is cosidering two mutually exclusive projects. Both projects need initial costs as $90,000. The cash flows generated by these two projects in five
Goodgrade Corp. is cosidering two mutually exclusive projects. Both projects need initial costs as $90,000. The cash flows generated by these two projects in five years are shown below. The discount rate is 13%. Display formulas used.
(1) Calculate NPVs for both project A and Project B. (10 points)
(2) Make a Data Table to compare the NPVs for project A and project B when discount rate varies from 2% to 20%, incrementing by 2%.
Make a connected scatter chart with different discount rates and both series of NPVs calculated in the same chart. (10 points)
(3) Briefly discuss two questions below: (10 points)
(a) When discount rate is 13%, which project should Goodgrade invest in? Why?
(b) Based on the slopes in the graph, which project 's NPV is more sensitive to changes in discount rate? Can you discuss the reason in terms of the difference between their cash flows?
| Year | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 |
| Cash Flows A | -$90,000 | $20,000 | $20,000 | $20,000 | $40,000 | $80,000 |
| Cash Flows B | -$90,000 | $30,000 | $30,000 | $30,000 | $40,000 | $40,000 |
| Discount Rate | 13% |
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