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What will be the net present value of project a

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Question 1: Newtown Corp. has to choose between two mutually exclusive projects. If it chooses project A, Newtown Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 13%?

Cash Flow

Project A

Year 0:-$12,500               Year 0:-$40,000

Year 1:8,000                      Year 1: 8,000

Year 2:14,000                      Year 2: 16,000

Year 3:13,000                      Year 3: 15,000

Year 4: 12,000

Year 5: 11,000

Year 6: 10,000

 

Reference no: EM132573076

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