Options for both are same 0 04m 12m 304m 332m 5 Which Projec

Options for both are same: $0, $0.4m, $1.2m, $30.4m, $33.2m

5. Which Project is more Profitable? Aa Aa Assume you have the task of considering the profitability of two projects. Project 1 currently costs 15 million, which is to be paid this year; the returns are 9 million after year 1 and 8 million after year 2. Project 2 currently costs 16 million, again to be paid this year; the returns are 10 mlion after year 1 and 9 mlon after year 2. €1.2 million , while the present value of At an interest rate of 7%, the present value of Project 1 is roughly Project 2 is roughly 0.4 million Suppose investing in one project eliminates the opportunity to invest in the other. If the interest rate is 7%, Project _ is preferable

Solution

The present value for project 1 is -15 + 9/1.07 + 8/1.07^2 = 15.399-15=$0.4 million

The present value for project 2 is -16 + 10/1.07 + 9/1.07^2 = 17.207-16=$1.2 million

So, project 2 is more profitable.