Project year 0 cash flow year 1 cash flow year 2 cash flow year 3 cash flow year 4 cash flow discount rate a -100 40 50 60 n/a .15 b -73 30 30 30 30 .15 22.a) assume that projects a and b are mutually exclusive. what is the correct investment decision and why? show your calculations for full credit.

The answer is: You should invest in Project B since it has a higher NPV ($12.65) than Project A ($12.04)

Explanation:

Using an excel spreadsheet we can determine the net present value (NPV function) of the cash flows associated with each project.

Project A                                                Project B

40                                                           30  

50                                                           30

60                                                           30

0                                                             30

         discount rate for both projects = 15%

NPV Project A's cash flows = $112.04 minus the amount invested (100) = $12.04

NPV Project B's cash flows = $85.65 minus the amount invested (73) = $12.65

answersituation analysis;