Answer:
Initial outflows for project X and Y is $120,000
PV for project X = $148,664.98
NPV For project X = $28,664.98
NPV for project Y = $12,170.15
PV for project Y = $132,170.15
Project X is more attractive
Explanation:
Net present value is the present value of after tax cash flows from an investment less the amount invested .
NPV can be calculated using a financial calculator:
NPV for proposal X :
Cash flow in year 0 = $-120,000
Cash flow each year from year one to 12 = $24,000
I = 12%
NPV = $28,664.98
PV = $-120,000 + 28,664.98 = $148,664.98
NPV for proposal Y :
Cash flow in year 0 = $-120,000
Cash flow in year 3, 6, 9, and 12 = $72,000
I = 12%
NPV = $12,170.15
PV = $120,000 + $12,170.15 = $132,170.15
The project X should be chosen because its NPV is greater than that of project Y.
