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problem: Real Time Systems is considering the development of 1 of 2 mutually exclusive new computer models. Each will require a net investment of dollar 5,000. The cash flow figures for each project are shown below:

Period 

 Project A

Project B

1

$2,000

$3,000

2

2,500

2,600

3

2,250

2,900

Model B, which will use a new type of laser disk drive, is considered a high-risk project, while Model A is of average risk. Real Time adds two percentage points to arrive at a risk adjusted cost of capital when estimating a high risk project. The cost of capital used for average risk projects is 10.5%. find out the NPVs for Models A & B?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M918140

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