The present value of the total costs over a five year period for Project April is $50,000. The present value of total costs over the same 5 year period for Project October is $40,000. The company uses a discount rate of 9%. There are no positive cash flows for these projects, but one or the other is required to comply with government regulations. Which project should be chosen and why?
A) April because it has a higher net present value (NPV).
B) Both projects because they will add value to the company.
C) Neither project because the NPVs are negative.
D) October because it has a lower net present cost.

Question

Quizplus · Accepted Answer

Since we are forced to do one of the projects, we should choose the one that has a lower cost. Project October has a lower present value of costs, which means it will be cheaper for the company to undertake. Therefore, the company should choose Project October.

The Present Value of the Total Costs Over a Five