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NPP

444 Corporate Finance BRILLIANT’S

(c) Explain the inconsistency in the ranking of the two projects.
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The discount factors are as follows: / {S>ñH$mC§Q> ’¡$³Q>g© {ZåZ{b{IV h¢…

Year / df© 0 1 2 3 4 5

Discount Factors
({S>ñH$mC§Q> ’¡$³Q>g©)
(10%) 1 0.91 0.83 0.75 0.68 0.62
(20%) 1 0.83 0.69 0.58 0.48 0.41

Solution:
(a) Calculation of the NPV
NPV of Project X

Years Cash Discount Discounted
Flows (in, 000) Factors @ 10% Values
(`) (`) (`)
0 (200) 1.00 (200)
1 35 0.91 31.85
2 80 0.83 66.40
3 90 0.75 67.50
4 75 0.68 51.00
5 20 0.62 12.40

NPV (+) 29.15

NPV of Project Y
Year Cash Flows Discount Factors @ 10% Discounted Values
(`) (`) (`)

0 (200) 100 (200)
1 218 0.91 198.38
2 10 0.83 8.30
3 10 0.75 7.50
4 4 0.68 2.72
5 3 0.62 1.86
NPV (+) 18.76