Evaluate average risk projects

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ABC Inc., a supplier of home alarm systems, uses a cost of capital of 12 percent to evaluate average risk projects, and it adds or subtracts 1 percentage points to evaluate projects of more or less risk. Currently, two mutually exclusive projects are under consideration. Both have a cost of $ 376 and will last 4 years. Project A, a riskier than-average project, will produce annual end of year cash flows of $ 104 . Project B, of less than average risk, will produce cash flows of $ 285 at the end of Years 3 and 4 only. To the nearest .01, list the NPV of the higher NPV project. Note, if the NPV is negative, place a - sign in front of your answer. Do not use the $ symbol.

*hint* Calculate both NPV's based on the cash flows. Be sure to discount the A (high-risk) project with a higher than average discount rate, and the B (low-risk) project with a low discount rate.

Reference no: EM131466638

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