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NEW QUESTION: 1
A company has to make a choice between two projects, because the available resources in money and kind are not sufficient to run both at the same time. Each project would take 9 months and would cost $250,000.The first project is a process optimization, which would result in a cost reduction of $120,000 per year. This benefit would be achieved immediately after the end of the project. The second project would be the development of a new product, which could produce the following net profits after the end of the project:
1st year: $ 15,000
2nd year: $ 125,000
3rd year: $ 220,000
Assumed is a discount rate of 5 % per year. Looking at the net present values of these projects' revenues in the first 3 years, what is true?
A. The first project is more attractive.
B. The second project is more attractive.
C. The available information is not sufficient to calculate and compare net present values.
D. Both projects are equally attractive.
Answer: A
Explanation:
As, PV = FV/(1+r)