You work for the 3T company, which expects to earn at least 18 percent on its investments. You have to choose between two similar projects. The following chart shows the cash information for each project. Which of the two projects would you fund if the decision is based only on financial information? Why? https://d2vlcm61l7u1fs.cloudfront.net/media%2F184%2F184a00ed-0b2b-4e12-a343-192a6ddf4058%2FphpDb0Jgy.png Please help problem has been giving me issues. Also leave your work on how to do it so it won’t bother me in future problems. Thank you! Omega Year YO Alpha Year Inflow Outflow Netflow Inflow Outflow Y2 Y3 Y4 Y5 Y6 Y7 Total 150,000 220,000 215,000 205,000 197,000 100,000 0 $225,000 -225,000 YO 0 190,000 90,000 Y1 150,000 Y2 190,000 Y3 215,000 Y4 75,000 Y5 97,000 Y6 70,000 Y7 150,000 250,000 250,000 200,000 180,000 120,000 Netflow 0 $300,000 -300,000 50,000 100,000 50,000 150,000 200,000 250,000 150,000 180,000 90,000 30,000 30,000 30,000 50,000 50,000 30,000 1,087,000 505,000 582,000 Total 1,200,000 530,000 670,000

Step 1: For each project, calculate Discounted Cash Flow (DCF) for each year from Y0 upto Y7. DCF is discounted at extected rate of return of 18%. Formula for calculating DCF is: DCFt = NCFt/(1+r)t, where DCFt and NCFt indicate Discounted Cash Flow and Net Cash Flow in year t, and r is the expected rate of return.
Step 2: For each project, calculate Net Present Value by adding the DCF of all the years from year 0 upto 7
Calculation in Excel and the formula are given below:
https://d2vlcm61l7u1fs.cloudfront.net/media%2Fbe2%2Fbe20b42c-7acc-43a1-8142-728083fd08a3%2FphpjMNqp4.png
Formula:
E3 =D3/1.18^A3 copy to E3:E10
L3 =K3/1.18^H3 copy to L3:L10
E11 =SUM(E3:E10)
L11 =SUM(L3:L10)
NPV of project Omega = $ 119,689
NPV of project Alpha = $ 176,525
NPV of project Alpha is higher. Therefore, project Alpha provides higher profit in terms of NPV.
 
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