Logan Company is considering two projects, A and B. The following information has been gathered...

Question:

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

Required:

(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:

How to Calculate Net Present Value: Definition, Formula & Analysis

from Financial Accounting: Help and Review

Chapter 5 / Lesson 20
10K

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