Question2 5 pts If MARR7 which alternative should be selecte

Question2 5 pts If MARR-7%, which alternative should be selected? Year 20,000 8,000 8,000 8,000 -28,000 11,000 11,000 11,000 0 2 3 Alt. A either Alt. A or B O Alt. B

Solution

Calculation of NPV of each Project

Net Present Value = PV of inflows - PV of outflows

Net Present Value of A = 20,992-20,000 = 992

Net Present Value of B = 28864 - 28000 = 864

Since, both projects have positive NPV both are acceptable. If the projects are mutually exclusive(only one can be selected), Select A since it has higher NPV.

Year	Cashflow	PVF/PVAF@7%	Present Value(Cashflow*PVF/PVAF)
A	B	A	B
0	(20,000)	(28,000)	1	(20,000)	(28,000)
1-3	8,000	11,000	2.624	20,992	28,864