Answer to Question #300248 in Economics of Enterprise for Busie

Question

John is contemplating on whether to go for a project that will give 100,000 each year for four years or a project that will give 75000 each year for six years. Advise him if the discount rate is 10%

Answer 1

$PV= \frac{CF}{(1+r)^{n}}$

First Project

= $\frac{100000}{(1+0.1)^{4}}= \frac{100000}{1.4641}$

$= 68,301.35$

Second Project

$\frac{75000}{(1+0.1)^{6}}= \frac{75000}{1.771561}$

$=42,335.54$

I would advise him to under take the first project as it is more beneficial in terms of returns.