Susan wants to know how to answer this question correctly:
GE has the following two projects that it is considering; it can choose only one. Project A has an investment outlay/expense today of $10M, and its cash flows over the next three years are $4M, $4M, $5M. Project B has an outlay of $10M, and cash flows of 0, 0, and $14M. Which project should GE choose if the cost of capital for similar projects is 5%?
The decision can be taken by first calculating the NPV or Net Present Value of both the projects. The project with the larger positive NPV should be selected. MS Excel provides a great tool to solve such NPV problems quickly and easily.
Watch the video below to learn how to calculate NPV or Net Present Value using Excel which helps us to make a decision about the project GE should undertake:
Calculating Net Present Value