Please explain step by step with formulas used on how to solve this problem:
Net present value - Independent projects. Using a 14% cost of capital, calculate the net present value for each of the independent projects shown in the following table, and indicate whether each is acceptable.
|
|
Project A
|
Project B
|
|
Initial investment (CF0)
|
$26,000
|
$500,000
|
|
Year (t)
|
Cash inflows (CFt)
|
|
1
|
$4,000
|
$100,000
|
|
2
|
4,000
|
120,000
|
|
3
|
4,000
|
140,000
|
|
4
|
4,000
|
160,000
|
|
5
|
4,000
|
180,000
|
|
6
|
4,000
|
200,000
|
|
7
|
4,000
|
|
|
8
|
4,000
|
|
|
9
|
4,000
|
|
|
10
|
4,000
|
|