Answer:
5. Uno: PW = -12,500 + 5000 (P/A, 10%, 4) + 2000 (P/F, 10%, 4)
Dos: PW = -25,000 + 8000 (P/A, 10%, 8) + 4000 (P/F, 10%, 8)
Explanation:
Net present value is the difference between present value of cash inflows and the present value cash outflows over the period of time. NPV method is used in capital budgeting to analyze profitability of the project.
The project Uno has cash outlay of 12,500 at year 1 and cash inflows of 5000 for 4 years. There is additional cash inflow of 2000 at year 4 for the salvage value of equipment.
The project Dos has cash outlay of 25,000 at year 1 and cash inflows of 8000 for 4 years. There is additional cash inflow of 4000 at year 4 for the salvage value of equipment.
