Consider the following two projects Project Year 0 CF Year 1

Consider the following two? projects: Project Year 0 ?C/F Year 1 ?C/F Year 2 ?C/F Year 3 ?C/F Year 4 ?C/F Year 5 ?C/F Year 6 ?C/F Year 7 ?C/F Discount Rate Alpha minus79 20 25 30 35 40 ?N/A ?N/A 16?% Beta minus80 25 25 25 25 25 25 25 17?% The net present value? (NPV) for project beta is closest? to: A. $ 13 B. $ 18 C. $ 22 D. $ 14

Solution

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=$25[1-(1.17)^-7]/0.17

=$25*3.922380132

=$98.06(Approx)

NPV=Present value of inflows-Present value of outflows

=(98.06-80)

=$18(Approx).