Page 348 - F2 - MA Integrated Workbook STUDENT 2018-19

Chapter 14

Test your understanding 6

KIO is considering two mutually exclusive projects with the following
investment cost and cash flows:

Project A Project B
($000) ($000s)

Initial investment 45 10

Scrap value in year 5 2 1
Year 1 20 5

Year 2 15 4
Year 3 10 3

Year 4 10 2
Year 5 10 2

Calculate the Net Present Value of the projects when the cost of capital is
10%

Project A Project B
Year Discount Cash flow PV Cash flow PV
factor 10% $000 $000 $000 $000
0

1

2
3

4
5

NPV = NPV =

Illustrations and further practice

Now try TYU question 9 from Chapter 14

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