You are evaluating two projects.You may accept only one of them.Project one will cost $379,000 initially and will pay $134,000 each year for the next 5 years.Project two will cost $454,000 initially,but will pay $101,000 for the next 10 years.The firm's cost of capital is 15%.Compute the NPV of each project.Which project has the highest NPV and by how much? Round your answers to the nearest dollar.

Question

Quizplus · Accepted Answer

NPV of Project 1 = -C₀ + $CF × 11ea7fdb_fc8b_3c5e_a768_cf77b984c7e1_TB2902_11 NPV of Project 1 = -$379,000 + $134,000 × 3.35216 NPV of Project 1 = $70,189 NPV of Project 2 = - 11ea7fdb_fc8b_3c5f_a768_5f13935b4769_TB2902_11 + $CF × 11ea7fdb_fc8b_6370_a768_23c5b4b5835b_TB2902_11 NPV of Project 2 = -$454,000 + $101,000 × 5.01877 NPV of Project 2 = $52,896 Project 1 has a higher NPV by $17,293.

You Are Evaluating Two Projects