Table 11.11
Yong Importers,an Asian import company,is evaluating two mutually exclusive projects,A and B.The relevant cash flows for each project are given in the table below.The cost of capital for use in evaluating each of these equally risky projects is 10 percent.
-The annualized NPV of Project A is ________.(See Table 11.11)

Question

Table 11.11
Yong Importers,an Asian import company,is evaluating two mutually exclusive projects,A and B.The relevant cash flows for each project are given in the table below.The cost of capital for use in evaluating each of these equally risky projects is 10 percent. 
-The annualized NPV of Project A is ________.(See Table 11.11)

Quizplus · Accepted Answer

To calculate the annualized NPV for each project, we need to use the formula: PVIFA = (1 - (1 / (1+r)^n)) / r

For Project A, the PV of cash inflows is $40,000, and the PV of cash outflows is $26,614. Therefore, the initial investment is $26,614 - $40,000 = -$13,386.

Next, we need to calculate the number of years for the project, which is 4.

Using the formula above, we can calculate the PVIFA as follows:

PVIFA = (1 - (1 / (1+0.1)^4)) / 0.1 = 2.7753

Finally, we can calculate the annualized NPV for Project A as follows:

Annualized NPV = -$13,386 * 2.7753 + $40,000 = $22,674

Therefore, the best choice is to choose Project A as it has a higher annualized NPV compared to Project B.

Table 11.11 Yong Importers,an Asian Import Company,is Evaluating Two Mutually Exclusive Projects,A