### Question on NPV

Posted:

**Fri Sep 23, 2016 4:22 pm**Question 4

1.00/0.00

Hi,

Please help in understanding the below question from Quampus

Project -A

Duration-2 Years

Interest Rate-5%

PV-4.54MN

Future Discounted Value-40MN

Project-B

Duration-3 Years

Interest Rate-15%

PV-3.63MN

Future Discounted Value-45MN

Company CEO is using economic model criteria of selecting projects. He has two projects; project A and B tabled for today’s meeting and has to select one of them. Following are the details of the projects. Which project will he select

A. Project A

B.Project B

C.Both Project A and B are equally attractive

D. Information is not sufficient to reach conclusion

- Solution

You need to calculate Net Present Value as it is one of the economic model criteria. To calculate NPV you need to calculate present value of both income and cost and calculate NPV by subtracting present value of cost from present value of income, Since future discounted value of income is given which means present value only . Hence project B is should be selected.

----In this how Present Value of Cost will be calculated----

1.00/0.00

Hi,

Please help in understanding the below question from Quampus

Project -A

Duration-2 Years

Interest Rate-5%

PV-4.54MN

Future Discounted Value-40MN

Project-B

Duration-3 Years

Interest Rate-15%

PV-3.63MN

Future Discounted Value-45MN

Company CEO is using economic model criteria of selecting projects. He has two projects; project A and B tabled for today’s meeting and has to select one of them. Following are the details of the projects. Which project will he select

A. Project A

B.Project B

C.Both Project A and B are equally attractive

D. Information is not sufficient to reach conclusion

- Solution

You need to calculate Net Present Value as it is one of the economic model criteria. To calculate NPV you need to calculate present value of both income and cost and calculate NPV by subtracting present value of cost from present value of income, Since future discounted value of income is given which means present value only . Hence project B is should be selected.

----In this how Present Value of Cost will be calculated----