24.1
Consider the following two projects:
   

1. Assume that your opportunity cost of capital is 12%. What are the NPVs of projects A & B and which would you take if you could only take one? Explain. (DO NOT just say, 'It has the higher NPV.' Tell me what that means and why it is relevant). (2 pts)
    

   \( \Large NPV(A) = -5000+ \frac{2500}{.12} \left [ 1 - \frac{1}{\left(1+.12 \right )^{3} } \right ] = {$}1{,}004.58\)

   \( \Large NPV(B) = -2000+ \frac{1000}{(1.12)^{1} } - \frac{500}{(1.12)^{2}} + \frac{3000}{(1.12)^{3}} = {$}629.60\)

   Choose A. A is the best choice because it maximizes the value of the company. The NPV tells us how much present value the project adds to the current value of the company. Project A adds more value than project B.
   

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