Suppose a Google bond will pay $4,500 ten years from now. If the going interest rate on safe 10-year bonds is 4.25%, how much is
1 answer:
You might be interested in
Answer:
Project A should be accepted NPV 3,948.77
Project B should be rejected NPV -7.086,76
Explanation:
We will calculate the present value of each cash flow at the discount rate of 11.5% using the formula for present value of a lump sum:
rate for each cashflow will be 11.5%
time will be the year of the cashflow
and the nominal each cash flow
<u>Project B:</u>
Year 1
PV 16,502.24
Year 2
PV 18,258.96
Year 3
PV 37,152.04
Total discounted cashflow: 71,913.24
NPV: discounted cashflow - investment
71,913.24 - 79,000 = -7.086,76
Project B should be rejected NPV -7.086,76
Project A:
Year 1:
PV 16,502.24
Year 2:
PV 21,154.66
Year 3:
PV 41,191.87
Total discounted cashflow: 78.848,77
NPV:discounted cashflow - investment
78,848.77 - 74,900 = 3,948.77
Project A should be accepted NPV 3,948.77