Answer Happy

Caribbean Builders Ltd. is considering 2 options for investment. It will cost $550 million to invest in project A and $900 million to invest in project B. Both investments have a useful life of 4 years. The cost of capital is 8 %. Determine, using the NPV criterion, which investment is more favourable. Table 1 gives cash flow and present value factors for the years of investments. Cash Flow Cash Flow Year Present Present Present A B Value Value Value Factor@ 7% Factor@ 8% Factor@ 9% 100,000,000 90000000 1 0.935 0.926 0.917 90,000,000 90000000 N 2 0.873 0.857 0.842 80,000,000 90000000 3 0.816 0.794 0.772 70,000,000 80,000,000 4 0.763 0.735 0.708 60,000,000 65,000,000 5 0.713 0.681 0.650