you are considering two mutually exclusive projects: project yellow and orange. project yellow has expected cash flow

Question

you are considering two mutually exclusive projects: project yellow and orange. project yellow has expected cash flow of -93000, 45000, 32900 and 39400. year 0 to 3 respectively. project orange has expected cash flows of -97000, 21700, 52300, and 57800 for years 0 to 3, respectively. project yellow has required ret?rn of 10.2 percent and orange has 11.3 percent. which project should you accept based on net present value ?

Help In Homework · Accepted Answer

Yellow Discount rate 0.113 Year 0 1 2 3 Cash flow stream -93000 45000 32900 39400 Discounting factor 1 1.113 1.238769 1.37875 Discounted cash flows project -93000 40431.27 26558.62 28576.61 NPV = Sum of discounted cash flows NPV Yellow = 2566.5 Where Discounting factor = (1 + discount rate)^(Corresponding period in years) Discounted Cashflow= Cash flow stream/discounting factor Orange Discount rate 0.113 Year 0 1 2 3 Cash flow stream -97000 21700 52300 57800 Discounting factor 1 1.113 1.238769 1.37875 Discounted cash flows project -97000 19496.86 42219.33 41922.03 NPV = Sum of discounted cash flows NPV Orange = 6638.22 Where Discounting factor = (1 + discount rate)^(Corresponding period in years) Discounted Cashflow= Cash flow stream/discounting factor Choose orange

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you are considering two mutually exclusive projects: project yellow and orange

Expert Solution

Archived Solution

Yellow
Discount rate	0.113
Year	0	1	2	3
Cash flow stream	-93000	45000	32900	39400
Discounting factor	1	1.113	1.238769	1.37875
Discounted cash flows project	-93000	40431.27	26558.62	28576.61
NPV = Sum of discounted cash flows
NPV Yellow =	2566.5
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor




Orange
Discount rate	0.113
Year	0	1	2	3
Cash flow stream	-97000	21700	52300	57800
Discounting factor	1	1.113	1.238769	1.37875
Discounted cash flows project	-97000	19496.86	42219.33	41922.03
NPV = Sum of discounted cash flows
NPV Orange =	6638.22
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor