If the project is used over its entire life, the NPV is negative.
NPV = (4,000 × 0.9091) + (3,750 × 0.8264) + (3,500 × 07513) – 9,600
= 3,636.4 + 3,099 + 2,629.55 – 9,600
= -235.05 × 1,000
= -235,050
If the project is abandoned after one year
NPV = (4,000 × 0.9091) + (6,000 ×0.9091) – 9,600
= 3,636.4 + 5,454.6 – 9,600
= -509 x 1,000
= -509,000
NPV = (4,000×0.9091) + (3,750 ×0.8264) + (3,800×0.8264) – 9,600
= 3,636.4 + 3,099 + 3,140.32 – 9,600
= 275.72 x 1,000
= 275,720
Advice
Project X should be abandoned after 2 years as its net present value is positive.
Kavungya answered the question on April 25, 2022 at 11:25
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