Python Exercises for Corporate Finance and Risk Management

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Question: 45 

Q: Consider the three projects A, B, and C, as shown here. If the firm has a cut-off period of 2-years, which of these projects should be selected?

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INSTRUCTIONS

In this question, we are given three project A,B,C which contains different cash flows and we have to find out which project will have cut- off period of 2 years, that means the investment we have to make at year zero should be compensated after 2 years. Also we have to check the NVP of the project the NPV (net present value ) should be positive to or it might be compared for the selection as well.

To calculate NPV, you have to assume risk free rate of 8%.

  • Define a function with the name "npvf", which will take two arguments, cList, and risk free rate.
  • The signature of the function should be like:

def npvf(cfList,r):

  • Define a variable R = (1/(1+r), we will call it discount factor to simplify the code.

  • Since the cut off period is of 2 years, we have to check NPV of 2 years only.

  • We will reject the project with least NPV.
See Answer

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