Finance, Accounting, and Banking Accounting, Finance Math Problem (Math Problem Sample)
finance, accounting, and banking
source..FINANCE, ACCOUNTING AND BANKING
Question 1
There are two projects A and B which cost $1000 and $900 respectfully and generate the next cash flows over the next five years
Project AProject B100350200350300350500350500350
What project is most profitable if the rate of return is 12%?
Solution
Given the rate of return calculate NPV of the two projects. We will use the NPV to compare which project is more profitable.
Project A
NPV=t=0∑n(1+i) tRt
i- Rate of return
t- Number of periods
NPV= Pv- initial investment
Project A
($100 + $200 + $300 + $500 + $500 = 1063.731(1+0.12)1 (1+0.12)2 (1+0.12)3 (1+0.12)4 (1+0.12)5
PV of the project- initial investment of project
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