Virus Stopper Inc., a supplier of computer safeguard systems, uses a
cost of capital of 12 percent to evaluate average-risk projects, and
it adds or subtracts 2 percentage points to evaluate projects of more
or less risk. Currently, two mutually exclusive projects are under
consideration. Both have a cost of $200,000 and will last 4 years.
Project A, a riskier-than-average project, will produce annual
end-of-year cash flows of $71,104. Project B, a less-than-average-risk
project, will produce cash flows of $146,411 at the end of years 3 and
4 only. Virus stopper should accept





0 	0% 	A . 	B with a NPV of $10,001 
0 	0% 	B . 	Both A and B because both have NPVs greater than zero
0 	0% 	C . 	B with a NPV of $8,042
0 	0% 	D . 	A with a NPV of $7,177
0 	0% 	E . 	A with a NPV of $15,968

jucylove -

The answer should be B - accept both projects because they both have positive NPVs.

Analysis -

Project A	0	1	2	3	4
cost	-200000				
					
Net Cash Flow		71104	71104	71104	71104
					
Discount factor @ 14%		0.877192982	0.769467528	0.674971516	0.592080277
Discounted Cash Flow	-200000	62371.92982	54712.21914	47993.17469	42099.27604
					
Summary	-200000	62371.92982	54712.21914	47993.17469	42099.27604
NPV A	7176.599699				
					
					
Project B	0	1	2	3	4
cost	-200000				
					
Net Cash Flow		0	0	146411	146411
					
Discount factor @ 10%		0.909090909	0.826446281	0.751314801	0.683013455
Discounted Cash Flow	-200000	0	0	110000.7513	100000.683
					
Summary	-200000	0	0	110000.7513	100000.683
NPV B	10001.43433				


thanks,
ragingacademic

I got the same conclusion with slightly different answers.  I also
pressed the IRR button on my BA 2+ calculator and it also agrees.