Answer:
b. project A; because its NPV is about $4,900 more than the NPV of project B
Explanation:
Net present value is the Net value all cash inflows and outflows in present value term. All the cash flows are discounted using a required rate of return.
Mutually exclusive projects are those projects where only one project is selected for investment after analysis. NPV is the most preferred method in the evaluation of mutually exclusive projects for capital budgeting. That project is accepted which has higher positive NPV.
Net present value of Project A =$13,157.24
Net present value of Project A =$8,256.98
Difference = $13,157.24 - $8,256.98 = $4,900.26
Net Present value working is made in MS Excel File which is attached with this answer, please find it.
The project that should be accepted is projects A as it shows more npv as compared to project B. So, option b is correct.
The net present value means the difference between the initial value and the present value of cash inflows.
NPV of A
= -Intial investment + (year 1 cash inflows/ rate of return) + (year 2 cash inflows/rate of return^2) + (year 3 cash inflows/ rate of return^3)
= -50,000+ 24,800/1.146+( 36,200/1.146^2)+(21,000/1.146^3)
= $13157.235
And,
NPV of B
= -Intial investment + (year 1 cash inflows/ rate of return) + (year 2 cash inflows/ rate of return^2) + (year 3 cash inflows/ rate of return^3)
=-$50,000+(41,000/1.138)+(20,000/1.138^2)+(10,000/1.138^3)
= $8256.975
Now the difference is
= 13157.235-8256.975
= $4900.26
Learn more about the rate here: https://brainly.com/question/24514253
