Accounting For Decision Making

by Paul Moses
(Durban, South Africa)

The following information relates to two projects, project Alpha and Project Beta, from which one must be chosen by Pacific construction Ltd.


After-tax Cash Flows
Year Alpha	 Omega
1        0       36000
2    18500       36000
3    36200       36000
4   123000       36000

Both projects require an initial investment of R118000. The cost of capital is 12%
As the project manager of Pacific Construction Ltd you are required to:
2.1 Calculate the Net Present Value (NPV) for both projects
2.2 Which project should be chosen? Why?

Comments for
Accounting For Decision Making

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Nov 05, 2009

The Answer
by: Anonymous

When you put the 2 scenarios into the NPV-Calculator, your get the following results:

NPV Alpha $610.
NPV Beta $-7,728

Project Alpha wins because it has a positive NPV as well as a higher NPV than project Beta.

Dee Reavis

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