The Cash Flows for Two Projects, a and B, Are

question 37

Multiple Choice

The cash flows for two projects, A and B, are shown in the table, below. Notice that Project A has a life of 3 years and Project B has a 2 year life. Use the replacement chain approach to calculate the NPV of each project over a common life-span. What is the NPV of the Project A chain minus the NPV of the Project B chain? Assume that the cost of capital is 8%. $$\begin{array} { | c | c | c | } \hline & \text { Project CFs } & \text { Project CFs } \\\hline \text { Time } & \text { A } & \text { B } \\\hline 0 & - 150 & - 104 \\\hline 1 & 66 & 66 \\\hline 2 & 66 & 66 \\\hline 3 & 66 & 0 \\\hline \text { NPV } & \$ 20.09 & \$ 13.70 \\\hline\end{array}$$

• A)$0.45
• B)$0.47
• C)$0.49
• D)$0.50
• E)$0.52

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