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5 October, 20:15

Project S has a cost of $11,000 and is expected to produce benefits (cash flows) of $3,400 per year for 5 years. Project L costs $23,000 and is expected to produce cash flows of $6,900 per year for 5 years. Calculate the two projects' NPVs, assuming a cost of capital of 14%. Do not round intermediate calculations. Round your answers to the nearest cent.

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  1. 5 October, 20:43
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    Project S = $672.48

    Project L = $11,500

    Explanation:

    Net Present Value (NPV) Is Calculated by Taking the Present day (Discounted) Value of all future Net Cash flows based on the Business Cost of Capital and Subtracting the Initial Cost of the Investment.

    Using a Financial Calculator NPV calculations will be as follows:

    Project S

    CF0 = ($11,000)

    CF1 = $3,400

    CF2 = $3,400

    CF3 = $3,400

    CF4 = $3,400

    CF5 = $3,400

    i = 14 %

    NPV = $672.48

    Project L

    CF0 = ($23,000)

    CF1 = $6,900

    CF2 = $6,900

    CF3 = $6,900

    CF4 = $6,900

    CF5 = $6,900

    i = 14 %

    NPV = $11,500.
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