Answer Happy

why do we multiply the present value factor @ 0% with the incremental investment to get the present value of cash flows
5:36 < Yesterday 9:26 PM Edit < C. Circumstances that should support the acceptance of Project A The IRR of the Project Ais higher, and it will retum more than the initial investment in only 2-years. Thus, firm will be able to realize its investment from Project A in period lesser than Project B. Also, the company should accept the Project Ait the discount rate is greater than 10.7% (IRR of incremental investment and lesser than 13.1% (IRR of Project A). Comment d. Calculate incremental investment (B-A): The incremental investment is the difference between the net present value of the Project A and the net present value of the Project B calculated as below: Compute the NPV of incremental investment at 0% discount rate as follows: D Inc Thijst AB - A- A) X-(D.C) C A You Pee fo 1 2 D -100 A . 1 . 3 1000 1000000 5000 100 1 NSUM 25.000 Thus, the NPV is 32100 Comment Step 1 Compute the NPV of incremental investment at 10% disco rate as follows: 1 EP