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Zellers, Inc. is considering two mutually exclusive projects, A and B. Project A costs $75,000 and is expected to generate $48,000 in year one and $45,000 in year two. Project B cost $80,000 and is evpected to generate $34,000 in year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four. Zellers, Inc.'s required rate of return for these projects is 10%. The net present value for Project B is:

Respuesta :

Tundexi

Answer:

$18,097.12

Explanation:

Year    Costs)/revenues     Discount factor     Present value

0           -$80,000.00                   1                    -$80,000.00

1              $34,000.00           0.909090909      $30,909.09

2             $37,000.00           0.826446281        $30,578.51

3             $26,000.00           0.751314801          $19,534.18

4             $25,000.00           0.683013455        $17,075.34

Total                                                                     $18,097.12

So, the net present value for Project B is $18,097.12

Note:

Net present value = Present value of cash outflows - Present value of cash in flows.

Discounting factor at 10% ==> Year 0 = 1/1+d)^0 = 1/(1+0.1)^0 = 1/(1.1)^0 = 1/1 = 1

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