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there are two projects A and B
A = 14729.90
B = 18475.90both projects are positive NPV.
my question is Which project company should accept according to NPV rule?
the company should accept both projects because both have positive npv ?
kindly assist me.
Yes – they should accept all projects that have a positive NPV.
If for some reason they could only do one of them (if, for example, they only need one machine and there are these two machines to choose from), then they should choose the one with the highest NPV.
Anfield Company has moved to a new premise. Rental is paid in advance and the new rental of $4,000 will be payable yearly in advance. The cost is 15% higher than what the company currently pays and the company plans to be in the premise for four years. The cost of capital is 10%.
What is the present value of the cash outflows relating to incremental rental for the length of the rental period?The correct answer is 1819
(The question above is from my school mock exam,they didnt provide explanation,so kindly assist me.) thank you!It is a strange school that is not prepared to give you an explanation of the answer – I hope that they do not charge you anything!! 🙂
Given that the rent is 15% higher that what they are currently paying, the incremental amount is 15/115 x 4,000 = $521.74 per year.
It is payable in advance and therefore is payable at time 0 and times 1 to 3.
Therefore the PV of the flows is 521.74 x (1 + 2.487) = $1,819.
The cost is 15% higher than what the company currently pays, so why not 15/100 x 4000=600?
If the rent used to be x, then the new rent is 15% higher and is therefore x + 0.15x = 1.15x.
Therefore 1.15x = 4,000.
x = 4,000 / 1.15 = 3478.26.Therefore the extra is 15% x 3478.26 = 521.74 (which is the same as 4,000 – 3476.26).
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