Logan Company is considering two projects, A and B.
The following information has been gathered on these projects:
|Project A||Project B|
|Initial investment needed||$40,000||$60,000|
|Present value of future cash flows||$60,000||$85,000|
|Useful life||4 years||4 years|
(Ignore income taxes)
a. What is the net present value of each project?
b. Which project should be chosen and why?
Answer and Explanation:
Net Present Value = Present Value of inflows - Present Value of outflows
For Project A,
NPV = 60000 - 40000 = $20,000.00
Fpr Project B,
NPV = 85000 - 60000 = $25,000.00
Project B should be chosen as it provides a higher NPV.
Learn more about this topic:
from Financial Accounting: Help and ReviewChapter 5 / Lesson 20
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